M/s. Chandrika Enterprise, Surat v. The ACIT., Circle-5,, Surat

ITA 2893/AHD/2006 | 2003-2004
Pronouncement Date: 23-07-2010 | Result: Allowed

Appeal Details

RSA Number 289320514 RSA 2006
Assessee PAN SFROM1996T
Bench Ahmedabad
Appeal Number ITA 2893/AHD/2006
Duration Of Justice 3 year(s) 7 month(s) 1 day(s)
Appellant M/s. Chandrika Enterprise, Surat
Respondent The ACIT., Circle-5,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 23-07-2010
Date Of Final Hearing 25-05-2010
Next Hearing Date 25-05-2010
Assessment Year 2003-2004
Appeal Filed On 22-12-2006
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AT SURAT CAMP BEFORE S/SHRI T.K. SHARMA JM AND D.C.AGRAWAL AM 1. M/S CHANDRIKA CORPORATION AND 2. M/S CHANDRIKA ENTERPRISE. 9/887 NEAR CHORYASI DAIRY AMBAJI ROAD SURAT. VS. ASSTT. CIT CIRCLE-5 SURAT. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI SAMIR SHAH AR ASSESSEE BY:- SMT. JYOTI LAXMI SR.DR O R D E R PER D. C. AGRAWAL ACCOUNTANT MEMBER . THESE ARE TWO APPEALS FILED BY THE ASSESSEE RAISIN G FOLLOWING GROUNDS AGAINST EACH:- ITA NO.2892/AHD/2006 (M/S CHANDRIKA CORPORATION) (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE HONBLE CIT(A)-IV SURAT ERRED BY DISALLOW ING THE APPEAL FILED BY YOUR APPELLANT. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY REJECTING THE BOOKS OF ACCOUNTS KEPT AND MAINTAINED DURING THE REGULAR COURSE OF BU SINESS BY YOUR APPELLANT BY RESORTING TO THE PROVISIONS OF SE CTION 145 OF THE ACT. THE HON. CIT(A) OUGHT TO HAVE DECLARED THE ACT OF ITA NO.2892 & 2893/AHD/2006 ASST. YEARS :2003-04 2 REJECTION OF BOOKS OF ACCOUNT AS IN VALID UN-GENUI NE UNWARRANTED AND IN CORRECT CONSIDERING THE WRITTEN SUBMISSIONS FILED BY YOUR APPELLANT. HOWEVER THE HON. CIT(A) F AILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND THUS ERRED IN LAW BY CONFIRMING THE ILLEGAL REJECTION OF BOOKS OF ACCOUNT. SIR YOUR HONOUR IS HUMBLY REQUESTED TO DECLARE THE BOOKS OF ACCOUNT KEPT AND MAINTAINED BY YOUR APPELLANT AS TR UE PERFECT CORRECT VALID AND GENUINE BY DELETING ALL THE ADDI TIONS OF INCOME MADE BY THE LD.AO. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 4 92 661/- ON ACCOUNT OF UNACCOUNTED COMMISSION ON DISCOUNTING BUSINESS. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF ADDITION. HENCE THE HON. CIT(A) HA S ERRED BY CONFIRMING THE ADDITION. HENCE YOUR APPELLANT PRAYS TO YOUR HONOUR TO DELETE THE ADDITION AND OBLIGE. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 31 46 715/- ON ACCOUNT OF UNACCOUNTED CAPITAL DEPLOYED IN FINAN CE AND ADVANCES. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF ADDITION. HENCE THE HON. CIT( A) HAS ERRED BY CONFIRMING THE ADDITION. HENCE YOUR APPEL LANT PRAYS TO YOUR HONOUR TO DELETE THE ADDITION AND OBLIGE. (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 5 66 408/- ON ACCOUNT OF UNACCOUNTED INTEREST ON FINANCE. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCU MSTANCES OF ADDITION. HENCE THE HON. CIT(A) HAS ERRED BY CONFI RMING THE ADDITION. HENCE YOUR APPELLANT PRAYS TO YOUR HONOU R TO DELETE THE ADDITION AND OBLIGE. (6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE HON. CIT(A) HAS ERRED BY ENHANCING THE ASS ESSMENT OF INCOME BY RS.1.72 LACS. HENCE YOUR HONOUR IS HUMBLY REQUESTED TO DELETE THE ENHANCEMENT OF INCOME MADE BY THE CIT(A) SURAT AND OBLIGE. 2. THIS ASSESSEE IS ENGAGED IN CHEQUE DISCOUNTING B USINESS. SURVEY WAS CARRIED OUT AT ITS PREMISES. NO REGULAR BOOKS O F ACCOUNT WERE FOUND 3 TO HAVE BEEN MAINTAINED. THE ASSESSEE HAD BEEN MAIN TAINING ITS RECORD ON WRITING PADS LOOSE SHEETS ETC. SUBSEQUENTLY BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO CLAIMING THAT THEY WERE MAIN TAINED BY THE ACCOUNTANT WHO HAS NOW COME BACK. THE AO HOWEVER WAS NOT SATISFIED. HE REJECTED THESE BOOKS HOLDING THAT THE Y ARE SUBSEQUENTLY PREPARED. THE AO FOUND THAT TOTAL TURNOVER OF CHEQU ES/DRAFTS AMOUNTING TO RS.1 232 489 642.70 WAS AS UNDER :- 1. UNION BANK 13193 RS.361 038 272.70 2. TAPI CO-OP. BANK 1718 RS.647 681 611.00 3. METRO CO-OP. BANK 1729 RS.219 782 439.00 4. PRIME CO-OP. BANK 790 RS. 3 987 320.00 TOTAL TURNOVER OF CHEQUE DD DISCOUNTING RS.1 232 489 642.70 THE COMMISSION @ 0.2% WAS WORKED AT RS.24 64 979/- BY MULTIPLYING 1232489642.70 BY 0.2. SINCE THE ASSESSEE HAD ALREAD Y DECLARED AN INCOME OF RS.19 72 318 FURTHER ADDITION OF RS.4 92 661/- WAS PROPOSED BY THE AO UNDER THE HEAD COMMISSION CHARGE. 3. IN RESPECT OF FINANCING BUSINESS THE AO WORKED O UT THE PEAK BALANCE FOR 4 DAYS AT RS.94 40 146/-. HE ESTIMATED 1/3 RD OF THIS TURNOVER AS CIRCULATING CAPITAL BY HOLDING THAT PERIOD OF FI NANCING IS ABOUT 90 DAYS TO 120 DAYS. 1/3 RD OF THE PEAK BALANCE WAS WORKED OUT AT RS.31 46 715 /- WHICH WAS TREATED AS ASSESSEES CIRCULATING CAPITAL NOT DISCLOSED. THIS WAS PROPOSED TO BE ADDED IN THE TOTAL INCOME OF THE ASS ESSEE. THE AO THEN WORKED OUT THAT ASSESSEE IS EARNING 18% INTEREST ON THIS CIRCULATING CAPITAL WHICH WAS CALCULATED AT RS.5 66 408/-. ON T HIS BASIS THE AO PROPOSED FOLLOWING ADDITIONS :- 4 1. UNACCOUNTED COMMISSION ON DISCOUNTING BUSINESS AS DISCUSSED AS ABOVE RS.4 92 661/- 2. UNACCOUNTED CAPITAL DEPLOYED IN FINANCE AND ADVANCES RS.31 46 715/- 3. UNACCOUNTED INTEREST ON FINANCE RS.5 66 408/- THE LD. CIT(A) CONFIRMED THE APPLICATION OF RATE OF COMMISSION AT 0.2% CHARGING OF INTEREST AT 18% AND ESTIMATING 1/3 RD OF PEAK BALANCE AS CIRCULATING CAPITAL. 4. IN ADDITION TO THIS LD. CIT(A) ENHANCED THE INC OME OF THE ASSESSEE BY RS.1.72 LACS. HE FOUND THAT CAPITAL DEPLOYED BY THE ASSESSEE IN THE BUSINESS IS AROUND RS.97 LACS AS UNDER :- SUNDRY CREDITORS 109.80 LACS CAPITAL INTRODUCED -12.90 LACS SUNDRY CREDITORS -0.00 LACS BANK OVERDRAFT -0.02 LACS TOTAL 96.88 LACS (ROUNDED RS.97 LACS) 5. THE LD. CIT(A) FURTHER FOUND THAT DAILY CHEQUE D ISCOUNTING IS ABOUT RS.25 TO RS.30 LACS AND MONEY GOT ROTATED IN 3 DAYS AND HENCE TOTAL MONEY BLOCKED IN DAILY BUSINESS WOULD BE RS.75 LACS TO RS.90 LACS. THE TOTAL OF THE TWO WOULD COME TO RS.172 LACS TO RS.18 7 LACS AND ACCORDINGLY ASSESSEES ASSESSED INCOME SHOULD BE RS .172 LACS AS AGAINST RS.52 35 860/- ESTIMATED BY THE AO. 6. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT CHEQU E/DRAFTS DISCOUNTING IS REGULAR BUSINESS OF THE ASSESSEE. TH ERE IS A PHENOMENA OF FEEMING AND LADING WHERE BY FUNDS OF ONE IS UTILIZE D TO PAY ANOTHER CUSTOMER IN A BUSINESS CYCLE BY MANAGING THE DAILY DEPOSITION OF CHEQUES AND ENCASHMENT FROM THE BANK. THE CASH IS GIVEN TO THE CUSTOMER ON OR AFTER 4 TH DAY AFTER GETTING COMMISSION FROM HIM. THUS CUSTOM ERS WHO 5 WANT NOT TO PAY COMMISSION HE ASKS TO COME BEYOND 5 TH FOLLOWING THE DAY WHEN CHEQUE IS PRESENTED TO THE ASSESSEE. THE A SSESSEE DOES NOT HAVE ITS OWN FUND AND THE FUNDS OF CUSTOMERS ARE ROTATED TO THE ADVANTAGE OF THE ASSESSEE. THE AO AND THE LD. CIT(A) HAVE WRONGL Y ASSUMED A BUSINESS CYCLE OF 90 TO 120 DAYS AND ACCORDINGLY 1/ 3 RD OF THE PEAK BALANCE AS CIRCULATING CAPITAL. THESE ARE TWO HYPOTHETICAL PRESUMPTION BUT ON THAT BASIS INCOME OF THE ASSESSEE CANNOT BE ESTIMATED. A LL THE TRANSACTIONS ARE MADE THROUGH BANK ACCOUNTS AND ARE VERIFIABLE AND T HEY ARE AUDITED INDEPENDENTLY BY THE AUDITORS. THE CASH IS IN FACT RETURNED TO THE CUSTOMERS AFTER GAP OF 4 TO 6 DAYS AND NOT WITHIN 3 DAYS. THERE IS NO UNACCOUNTED BLOCK CAPITAL IN THE BUSINESS AND ESTIM ATE SO MADE BY THE AO IS ONLY A PRESUMPTION NOT SUPPORTED BY ANY DOCUM ENTARY EVIDENCE OR OTHERWISE. THE COMMISSION INCOME IS GENERALLY 0.15 AND NOT 0.2 ACCORDINGLY. THE COMMISSION INCOME IN THE CASE OF C HANDRIKA ENTERPRISE WOULD WORK OUT TO RS.6 69 835/- WHEREAS THAT ASSESS EE HAS DECLARED COMMISSION INCOME OF RS.7 25 000/-. SIMILARLY IN T HE CASE OF CHANDRIKA CORPORATION SUCH COMMISSION INCOME WOULD WORK OUT T O RS.18 48 750/- WHEREAS ASSESSEE HAS OFFERED COMMISSION INCOME OF R S.19.72 LACS. 7. REGARDING BLOCK CAPITAL AND INTEREST THEREON LD. AR SUBMITTED THAT THE ENTIRE ESTIMATE MADE BY THE AO AND LD. CIT(A) I S BY ESTIMATE AND ARE NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. HE SUBMI TTED THAT IN THIS LINE OF BUSINESS IT IS POSSIBLE THAT CASH IS PAID T O THE CUSTOMER BUT CHEQUES ARE NOT CLEARED AND THEREFORE DEMAND COMES OUT FR OM SUCH CUSTOMERS IT IS SQUARED UP OR CLEARED BY MAKING CASH PAYMENT. IT WAS SUBMITTED THAT ONLY 21 CHEQUES WERE BOUNCED IN CASE OF CHANDRIKA C ORPORATION. THOUGH CASH WAS ALREADY PAID TO THEM BUT THESE PARTIES SUB SEQUENTLY RETURNED THE MONEY TO THE ASSESSEE. SINCE ALL THESE ADDITIONS IN RESPECT OF CIRCULATING 6 CAPITAL AND INTEREST THEREON ARE MADE ON ESTIMATE B ASIS THEY SHOULD BE DELETED. 8. IN RESPECT OF ENHANCING OF INCOME BY LD. CIT(A) THE LD. AR SUBMITTED THAT THE ESTIMATE MADE BY THE LD. CIT(A) THAT TOTAL FUNDS BLOCKED ARE THREE TIMES OF THE DAILY CHEQUE DISCOUN TING BUSINESS IS WITHOUT ANY BASIS AND WITHOUT SUPPORT OF ANY DOCUME NTARY EVIDENCE. THIS IS NOTHING BUT DUPLICATION OF ADDITION WHICH IS ALR EADY MADE BY THE AO IN RESPECT OF CIRCULATING CAPITAL AND INTEREST THEREON . 9. AGAINST THIS THE LD. DR SUBMITTED THAT ASSESSEE HAS NOT PROVIDED ANY SATISFACTORY EXPLANATION AND EVIDENCE AS TO HOW MUCH IS THE CIRCULATING CAPITAL AND HOW MUCH IS INTEREST CHARGE D THEREON. THEREFORE ESTIMATE MADE BY LD. CIT(A) IS CORRECT AND IT TENDS TO LOGIC. ONCE ASSESSEE SAYS THAT CHEQUES IN CASE OF 21 CUSTOMERS WERE BOUNCED AND THOSE CUSTOMERS WERE PAID CASH SHOWED THAT ASSESSEE IS IN FACT GIVING CASH TO THE CUSTOMERS JUST IMMEDIATELY AFTER RECEI VING THE CHEQUE/DRAFT. IF ASSESSEE WOULD HAVE BEEN PAYING CASH AFTER ENSUR ING THAT CHEQUE/DRAFTS ARE CLEARED AND MONEY IS CREDITED IN HIS BANK ACCOU NT THEN THERE IS NO REASON OF SUCH BAD DEBTS AND REQUIRING THE CUSTOMER S TO RETURN THE MONEY. FURTHER ESTIMATE MADE BY THE AO AND THE LD. CIT(A) AT 0.2% AS COMMISSION IS REASONABLE AS BORNE OUT FROM IMPOUNDE D DOCUMENTS. SIMILARLY IN FINANCING BUSINESS THE AVERAGE LOCK-I N-PERIOD IS AROUND 90 TO 120 DAYS AND THEREFORE IT WOULD BE CORRECT TO ESTIMATE 1/3 RD OF PEAK BALANCE AS CIRCULATING CAPITAL. SINCE FROM THE DOCU MENT IT IS FOUND THAT INTEREST EARNED BY THE ASSESSEE IS ABOUT 18% THEN T HE AO AND THE LD. CIT(A) WERE JUSTIFIED IN ESTIMATING INTEREST ON CIR CULATING CAPITAL AT 18%. REGARDING ENHANCEMENT LD. DR SUBMITTED THAT TOTAL BLOCKED CAPITAL OF THE ASSESSEE HAS BEEN CORRECTLY WORKED OUT BY LD. C IT(A) AT RS.172 LACS 7 AND THEREFORE IT SHOULD BE THE ASSESSED INCOME OF CHANDRIKA CORPORATION. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE THREE ISSUES ON WHICH ADDITIONS ARE MAD E ARE DISCUSSED AS UNDER :- (1) REGARDING COMMISSION THE AO AND THE LD. CIT(A ) HAVE APPLIED THE RATIO OF 0.2 % OVER TOTAL TURNOVER WORKED ON TH E BASIS OF CHEQUES DEPOSITED IN THE BANK. WHEREAS ASSESSEE IS CLAIMING THAT SUCH COMMISSION IS NOT MORE THAN 0.15% AND STILL THE ASS ESSEE HAS SHOWN HIGHER INCOME. WHERE THE COMMISSION CHARGED BY THE TWO ASSESSEES IS 0.2% OR 0.15% NONE OF THE PARTIES I.E. THE AO OR TH E ASSESSEE HAVE GIVEN ANY EVIDENCE. WE THEREFORE RESTORE THE MATTER TO THE FILE OF AO WHO WILL EXAMINE VARIOUS INSTANCES AT RANDOM AND WORK OUT HO W MUCH COMMISSION ASSESSEE IS CHARGING ON AN AVERAGE. THE AO WILL TAKE RANDOMLY SUFFICIENT INSTANCES OF RECEIPT OF CHEQUES AND RETURN OF MONEY THEREON TO FIND OUT AMOUNT OF COMMISSION DEDUCTED B Y THE ASSESSEE AND THEN WORK OUT THE AMOUNT OF COMMISSION. ALL THESE I NSTANCES WILL BE AVERAGED OUT AND SUCH AVERAGE SHOULD BE APPLIED TO THE TOTAL TURNOVER. AS A RESULT THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. (2) ESTIMATION OF CIRCULATING CAPITAL FOR DETERMIN ING CIRCULATING CAPITAL TWO APPROACHES SHOULD BE ADOPTED ONE IS FRO M PEAK BALANCE IN THE BANK AS WORKED OUT BY THE AO AND OTHER IS PERIOD FO R WHICH CHEQUES/DRAFTS ARE BLOCKED. IN THE FIRST APPROACH P EAK BALANCE AS DETERMINED BY AO AND CONFIRMED BY LD. CIT(A) IS UPH ELD. HOWEVER APPLICATION OF 1/3 RD THEREOF AS CIRCULATING CAPITAL IS NOT SUPPORTED BY ANY EVIDENCE. THE AO WILL THEREFORE FIND OUT INSTANCE S AS TO WHAT PERIOD FINANCE ARE BLOCKED WHETHER 90 DAYS OR LESS THAN TH AT OR 120 DAYS OR 8 MORE. SUFFICIENT NUMBER OF RANDOM INSTANCES WILL BE SELECTED AND AVERAGE THEREOF WILL BE TAKEN. FROM SUCH AVERAGE THE PERCE NTAGE OF PEAK BALANCE AS CIRCULATING CAPITAL WILL BE DETERMINED. OTHER AP PROACH IS TO FIND OUT ASSESSEES MONEY BLOCKED IN IRRECOVERABLE DEBTS I.E . CHEQUES/DRAFTS IN RESPECT OF WHICH CASH HAS BEEN PAID BY THE ASSESSEE BUT WHICH WERE NOT HONOURED BY CLEARING IN THE BANKING CHANNEL. THE WO RKING GIVEN TO THE TRIBUNAL AS ON THE DATE OF SURVEY ABOUT THE AMOUNT OF IRRECOVERABLE DEBTS WILL BE PROVIDED TO THE AO ALSO. IN ANY CASE THE AO WILL FIND OUT DATA ON THE BASIS OF MATERIAL AVAILABLE WITH HIM AND ON THE BASIS OF MATERIAL COLLECTED FROM THE ASSESSEE OR ON INVESTIGATION AN D DETERMINE PEAK AMOUNT OF MONEY BLOCKED IN IRRECOVERABLE DEBTS. IN ADDITION TO THIS AO WILL FIND OUT CASH OUTFLOW AGAINST CHEQUES AND DRAF TS RECEIVED WHICH ARE NOT ACTUALLY CLEARED ON THE DATE WHEN PAYMENTS IN C ASH ARE MADE TO THE CUSTOMER(S). THUS TOTAL OF THE TWO SUMS WILL BE A P RIMA FACIE MEASURE ASSESSEES OWN CAPITAL INVOLVED IN THE BUSINESS. AFTER WORKING OUT CIRCULATING CAPITAL AO WILL CONS IDER WHETHER ASSESSEE HAD ANY MONEY AVAILABLE ON ACCOUNT OF DISC LOSURE MADE BY IT BEFORE THE SETTLEMENT COMMISSION. IT HAS BEEN CLAIM ED BY THE ASSESSEE GROUP THAT IT HAD MADE DISCLOSURE OF RS.52 06 950/- BEFORE SETTLEMENT COMMISSION AND A SUM OF RS.6 25 000/- HAS BEEN DECL ARED IN VDIS. THE ASSESSEE WILL EXPLAIN BEFORE THE AO WHETHER IT WAS HIS DISCLOSURE IF YES IN WHAT FORM THIS DISCLOSURE OF INCOME WAS STANDING FOR ALL THESE YEARS. WHEREVER AO IS SATISFIED TO THE EXTENT OF CAPITAL A VAILABLE WITH HIM ON ACCOUNT OF SUCH DISCLOSURE BENEFIT WOULD BE GIVEN T O THE ASSESSEE. WHEN CIRCULATING CAPITAL IS CALCULATED FROM THE TW O APPROACHES HIGHER OF THE TWO WILL BE TREATED AS CAPITAL DEPLOY ED BY THE ASSESSEE IN THE FINANCING/CHEQUE DISCOUNTING BUSINESS. 9 11. ACCORDINGLY THE ISSUE OF CALCULATION OF CIRCULA TING CAPITAL IS ALSO RESTORED TO THE FILE OF AO. 12. THE 3 RD ISSUE IS REGARDING CHARGING OF INTEREST ON CIRCULA TING CAPITAL. THE AO WILL WORK OUT HOW MUCH CAPITAL IS BLOCKED IN IRRECOVERABLE DEBTS AND CHEQUE DISCOUNTING BUSINESS AND HOW MUCH CAPITA L IS AVAILABLE FOR FINANCING. TO THE EXTENT CAPITAL IS AVAILABLE FOR F INANCING INTEREST WILL BE CHARGED @ 18%. THE ASSESSEE WILL ALSO EXPLAIN AS TO HOW AS CLAIMED BY IT HE IS RECOVERING MONEY FROM THE CUSTOMERS TO WH OM IT HAS PAID CASH AGAINST PRESENTATION OF DRAFTS/CHEQUES WHICH ARE SU BSEQUENTLY BOUNCED ONCE IT IS NOT MAINTAINING THE RECORD OF IDENTITY O F SUCH CUSTOMERS AS CLAIMED BY IT THROUGHOUT. 13. ENHANCEMENT OF INCOME BY LD. CIT(A) THE LD. CI T(A) HAS DETERMINED HIGHER CAPITAL DEPLOYED BY THE ASSESSEE ON THE BASIS OF HYPOTHESIS THAT IN ADDITION TO CIRCULATING CAPITAL ASSESSEE HAD BLOCKED CAPITAL IN DEBTS. WE HAVE ALREADY COVERED THIS ASPE CT WHILE GIVING DIRECTIONS TO THE AO FOR DETERMINING UNDISCLOSED CA PITAL OF ASSESSEE AND THEREFORE THERE IS NO NECESSITY TO CONSIDER THIS I SSUE SEPARATELY. 14. ACCORDINGLY THE AO WILL FRESHLY DETERMINE COMMI SSION AND UNDISCLOSED CAPITAL OF ASSESSEE AND THEREAFTER INTE REST EARNED BY IT @ 18% ON THE CAPITAL DEPLOYED IN FINANCING BUSINESS. 15. AS A RESULT WE RESTORE THE APPEAL TO THE FILE OF AO FOR FRESH DETERMINATION. ITA NO.2893/AHD/2006 (CHANDRIKA ENTERPRISE) 16. IN THIS APPEAL FOLLOWING GROUNDS ARE RAISED:- 10 (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE HONBLE CIT(A)-IV SURAT ERRED BY DISALLOW ING THE APPEAL FILED BY YOUR APPELLANT. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY REJECTING THE BOOKS OF ACCOUNTS KEPT AND MAINTAINED DURING THE REGULAR COURSE OF BU SINESS BY YOUR APPELLANT BY RESORTING TO THE PROVISIONS OF SE CTION 145 OF THE ACT. THE HON. CIT(A) OUGHT TO HAVE DECLARED THE ACT OF REJECTION OF BOOKS OF ACCOUNT AS IN VALID UN-GENUI NE UNWARRANTED AND IN CORRECT CONSIDERING THE WRITTEN SUBMISSIONS FILED BY YOUR APPELLANT. HOWEVER THE HON. CIT(A) F AILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND THUS ERRED IN LAW BY CONFIRMING THE ILLEGAL REJECTION OF BOOKS OF ACCOUNT. SIR YOUR HONOUR IS HUMBLY REQUESTED TO DECLARE THE BOOKS OF ACCOUNT KEPT AND MAINTAINED BY YOUR APPELLANT AS TR UE PERFECT CORRECT VALID AND GENUINE BY DELETING ALL THE ADDI TIONS OF INCOME MADE BY THE LD. AO. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 4 86 525/- ON ACCOUNT OF UNACCOUNTED COMMISSION ON DISCOUNTING BUSINESS. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF ADDITION. HENCE THE HON. CIT(A) HA S ERRED BY CONFIRMING THE ADDITION. HENCE YOUR APPELLANT PRAYS TO YOUR HONOUR TO DELETE THE ADDITION AND OBLIGE. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 27 02 920/- ON ACCOUNT OF UNACCOUNTED CAPITAL DEPLOYED IN FINAN CE AND ADVANCES. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF ADDITION. HENCE THE HON. CIT( A) HAS ERRED BY CONFIRMING THE ADDITION. HENCE YOUR APPEL LANT PRAYS TO YOUR HONOUR TO DELETE THE ADDITION AND OBLIGE. (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE LD. AO HAD ERRED BY MAKING ADDITION OF RS. 1 85 380/- ON ACCOUNT OF UNACCOUNTED INTEREST ON FINANCE. THE HON. CIT(A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCU MSTANCES OF ADDITION. HENCE THE HON. CIT(A) HAS ERRED BY CONFI RMING THE ADDITION. HENCE YOUR APPELLANT PRAYS TO YOUR HONOU R TO DELETE THE ADDITION AND OBLIGE. 11 (6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND ALSO IN LAW THE HON. CIT(A) HAS ERRED BY ENHANCING THE ASS ESSMENT OF INCOME BY RS.37 LACS. HENCE YOUR HONOUR IS HUMBLY R EQUESTED TO DELETE THE ENHANCEMENT OF INCOME MADE BY THE CIT (A) SURAT AND OBLIGE. 17. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A RE GISTERED FIRM CARRYING ON BUSINESS OF DISCOUNTING OF CHEQUES/DRAFTS AND FI NANCING. IT STARTED BUSINESS ACTIVITIES FROM 1996 TO 2002. A SURVEY UND ER SECTION 133A WAS CARRIED OUT ON 12.3.2003. THE BOOKS OF ACCOUNTS AND DOCUMENTS WERE INVENTORISED AND A CASH OF RS.1 05 000/- WAS FOUND. THE AO NOTICED THAT ASSESSEE IS NOT MAINTAINING REGULAR BOOKS OF ACCOUN T SUCH AS CASH BOOK LEDGER BUT IS MAINTAINING ONLY NOTE BOOKS DIARIES LOOSE PAPERS AND WRITING PADS. FURTHER HEAVY RELIANCE WAS PLACED ON BANK STATEMENTS FOR WORKING OUT TOTAL INCOME. THE AO ACCORDINGLY PROPOS ED TO REJECT THE TYPE OF BOOKS/DIARIES MAINTAINED BY THE ASSESSEE AND COM PUTED THE INCOME IN ACCORDANCE WITH PROVISIONS OF SECTION 144. IT WAS E XPLAINED TO THE AO THAT MOST OF THE DEALINGS ARE CARRIED OUT THROUGH B ROKERS. THE PERSONS WHO BRING CHEQUES AND DRAFTS ARE NOT KNOWN TO THE A SSESSEE. CASH IS ISSUED AGAINST ACCEPTANCE OF CHEQUES/DRAFTS BUT AF TER REALIZATION OF DRAFTS/CHEQUES. IN FACT VOUCHERS ARE ISSUED AGAINST RECEIPT OF DRAFT/CHEQUE BUT CASH IS PAID SUBSEQUENTLY AFTER SOME DAYS TO TH E PERSONS WHO BRING SUCH VOUCHERS TO THE ASSESSEE. THE VOUCHER SO ISSUE D BY THE ASSESSEE IS THE INSTRUMENT WHICH COULD BE ENCASHED BY ANY ONE. BOOKS OF ACCOUNTS WERE LYING WITH THE ACCOUNTANT WHO HAS COME BACK AN D BOOKS WERE PRODUCED. IT IS CLAIMED THAT THE SERVICES PROVIDED BY THE ASSESSEE TO ANY PERSON ARE GENUINE. ALL THE ENTRIES MADE IN BANK ST ATEMENTS ETC. ARE RECORDED IN THE REGULAR BOOKS NOW SUBSEQUENTLY PROD UCED. THE AO WAS HOWEVER NOT SATISFIED. HE HELD THAT SEVERAL ENTRIE S FOUND REFLECTED IN IMPOUNDED BOOK SUCH AS B/F-19 ARE NOT FOUND RECORDE D IN THE BOOKS SO 12 PRODUCED CASH BOOK IS NOT WRITTEN ON DAY TO DAY BA SIS THEY DID NOT CONTAIN THE ENTRIES OF CASH PAID ON REGULAR BASIS AND THE ASSESSEE HAS OFFERED AN ADDITIONAL INCOME OF RS.5 LACS. THEREFOR E THE BOOKS OF ACCOUNTS ARE NOT CORRECT AND COMPLETE AND ACCORDING LY BOOKS ARE REJECTED U/S 145(3). FOR ESTIMATING INCOME AO FOUND THAT TOT AL AMOUNT OF CHEQUES/DRAFTS DISCOUNTED BY THE ASSESSEE ARE AS UN DER :- 1. UBI 13206 RS.361381 084.20 2. METRO CO-OP.BANK 2655 RS.93 508 976.00 TOTAL TURNOVER ON CHEQUE/DD DISCOUNTING RS.455190060.20 HE FURTHER APPLIED A COMMISSION RATE OF 0.2% ON DIS COUNTING DRAFTS/CHEQUES WHICH RESULTED IN AN INCOME OF RS.9 10 280/- (RS.455190060 X 0.2). SINCE ASSESSEE HAD ALREADY DI SCLOSED AN INCOME OF RS.7 25 000/- HE PROPOSED FURTHER ADDITION OF RS.1 85 380/-. IN ADDITION TO THIS THE LD. AO NOTICED THAT ASSESSEE IS DOING FINANCE BUSINESS AND CHARGING INTEREST @ 0.2%. INTEREST IS DEDUCTED AT T HE TIME OF GIVING LOAN AND LOAN IS RECOVERED ON DAY TO DAY BASIS IN EQUAL INSTALMENTS. THE AO EXAMINED THE IMPOUNDED DOCUMENT B/F-19 AND B/F-4 WH ICH INDICATED OUTSTANDING BALANCE AT RS.12 69 659 AND RS.52 69 62 9/- BUT PART OF THIS AMOUNT WAS CONSIDERED IN THE CASE OF SISTER CONCERN NAMELY CHANDRIKA CORPORATION. HE THEN WORKED OUT THE PEAK AMOUNT OF TWO BANK ACCOUNTS OF THE ASSESSEE AND FOUND THAT ASSESSEE HAD A TURNO VER OF FINANCE AT RS.81 08 762/-. TREATING THE AGILE OF FINANCE BUSIN ESS AS 120 DAYS HE WORKED OUT 1/3 RD AMOUNT THEREOF AS ASSESSEES CIRCULATING CAPITAL W HICH WAS CALCULATED AT RS.27 02 920/-. HE THEN CALCULATE D INTEREST AMOUNT @ 18% THEREON AT RS.4 86 525/-. THUS THE AO PROPOSED THREE ADDITIONS IN THE TOTAL INCOME OF THE ASSESSEE AS UNDER :- 13 1. UNACCOUNTED COMMISSION ON DISCOUNTING BUSINESS AS DISCUSSED ABOVE- RS.4 86 525/- 2. UNACCOUNTED CAPITAL DEPLOYED IN FINANCE AND ADVANCES- RS.27 02 920/- 3. UNACCOUNTED INTEREST ON FINANCE- RS. 1 85 380 /- 18. THE LD. CIT(A) CONFIRMED THE ESTIMATE BY THE AO BY ADOPTING COMMISSION @ 0.2% AND TREATING 1/3 RD OF THE TURNOVER AS CIRCULATING CAPITAL. HE ALSO CONFIRMED THE ACTION OF THE AO IN CHARGING INTEREST @ 18% ON CIRCULATING CAPITAL SO WORKED OUT. HE ACCORD INGLY DISMISSED THE APPEAL FILED BY THE ASSESSEE. 19. SINCE THE FACTS AND CIRCUMSTANCES OF THIS CASE ARE SIMILAR TO THE CASE OF M/S CHANDRIKA CORPORATION THE ARGUMENTS OF LD. AR AND THE LD. DR ARE ALSO SAME WE SET ASIDE THE ORDER OF LD. CIT (A) AND RESTORE THE ISSUES TO THE FILE OF AO FOR FRESH DECISION AS PER OUR DIRECTIONS GIVEN IN THE ABOVE APPEAL. THE AO WILL DECIDE THE ISSUES AFR ESH IN ACCORDANCE WITH OUR DIRECTIONS GIVEN ABOVE. 20. IN THE RESULT APPEALS FILED BY THE ASSESSEES A RE ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 23/7/2010 SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 23/7/2010 MAHATA/- 14 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD