M/s. Xpress Printer, Surat v. The Income tax Officer,Ward-2(1),, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.3239/AHD/2008 (ASSESSMENT YEAR:-2005-06) M/S XPRESS PRINTERS SHED NO. 25 NEW FUNCTIONAL ESTATE ROAD NO.6 UDHNA SURAT V/S INCOME-TAX OFFICER WARD- 2(1) SURAT PAN: AAAFX 0215 C [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI SUNIL TALATI AR REVENUE BY:- SHRI R K DHANESTA DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DAT ED 11-07-2008 OF THE LD. CIT(APPEALS)-II SURAT FOR TH E ASSESSMENT YEAR (AY) 2005-06 RAISES THE FOLLOWING GROUNDS:- 1. THE LEARNED C.I.T.(APPEALS) ERRED BOTH IN LAW AND O N FACTS IN CONFIRMING THE ADDITION OF RS.6 52 219/- ON ACCOUNT OF GROSS PROFIT ESTIMATED BY THE ASSESSING OFFICER BY REJECTING THE BOOK RESULT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE DETAILED SUBMISSION MADE TO THE ASSESSING OFFICER AS WELL AS C.I.T. (APPEALS) THE ADDITION OF HUGE AMOUNT OF RS.6 52 2 19/- WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E BEING ERRONEOUS DESERVES TO BE DELETED. THE SAME BE DELET ED. 2. THE LEARNED C.I.T.(APPEALS) FURTHER ERRED IN CON FIRMING THE DISALLOWANCE AT 20% OF EXPENSES ON MOBILE AND TELEP HONES AT RS.35 244/-. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE SUBMISSIONS MADE TO THE LOWERS AUTHORIT IES THE ADDITION OF RS.35 244/- DESERVES TO BE DELETED AND THE SAME BE DELETED. 3. THE LEARNED C.I.T.(APPEALS) FURTHER ERRED BOTH I N LAW AND ON FACTS IN RETAINING DISALLOWANCE OF RS.66 355/- AT 10% OF RS. 6 63 550/- IN RESPECT OF VARIOUS EXPENSES NARRATED AT PARA 8.1 OF THE ASSESSMENT ORDER. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN VIEW OF THE NATURE OF THE EXPENSES THE LEARNED C.I.T.(APPE ALS) OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE OF RS.1 32 710 /- MADE BY THE A.O. IT IS SUBMITTED THAT THE EXPENSES CLAIMED BE A LLOWED IN FULL. 4. THE LEARNED C.I.T.(APPEALS) FURTHER ERRED BOTH I N LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.20 95 000/- U/S. 68 O F THE INCOME TAX ITA N O.3239/AHD/08 2 ACT IN RESPECT OF AMOUNTS BROUGHT BY THE PARTNERS A S CAPITAL. IN VIEW OF THE SUBMISSIONS MADE THE ADDITION OF RS.20 95 000/- BEING ERRONEOUS DESERVES TO BE DELETED. THE SAME BE DELET ED. 5. THE LEARNED C.I.T.(APPEALS) FURTHER ERRED IN CON FIRMING THE DISALLOWANCE OF RS.18 000/- U/S.40(2)(B) OF THE INC OME TAX ACT IN RESPECT OF INTEREST PAID BY HOLDING IT TO BE EXCESS IVE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE OF RS.18 000/- ERRONEOUSLY MADE DESERVES TO BE DELETED. THE SAME B E DELETED. 6. THE LEARNED C.IT.(APPEALS) FURTHER ERRED BOTH IN LAW AND ON FACTS IN RETAINING THE ADDITION OF RS.1 00 013/- IN RESPECT OF OCTROI CHARGES EXPENSES HOLDING TO BE OF CAPITAL IN NATURE. IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE AMOUNT OF OCTROI CHARGES ON MACHINERY OUGHT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. THE SAME BE ALLOWED NOW. 7. THE LEARNED C.IT.(APPEALS) FURTHER ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.76 119/- U/S.40(A)(IA ) OF THE IT. ACT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITI ON OF RS.76 119/- BEING ERRONEOUS DESERVES TO BE DELETED. THE SAME BE DELETED NOW. 8. THE LEARNED C.IT.(APPEALS) OUGHT TO HAVE ALLOWED THE APPEAL IN TOTO. 9. THE ORDER PASSED BY THE LEARNED C.IT.(APPEALS) I S BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME BE HELD SO NOW. 10. YOUR APPELLANT CRAVES LEAVE TO ADD ALTER AND/O R TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING. 2. SUBSEQUENTLY AFTER MORE THAN TWO YEARS VIDE LE TTER DATED 1.11.2010 FILED ON 2.11.2010 THE ASSESSEE SOUGHT LEAVE TO RAISE THE FOLLOWING ADDITIONAL GROUND :- THE LEARNED CIT(A) OUGHT TO HAVE ADMITTED THE ADDI TIONAL EVIDENCE PRODUCED BEFORE HIM ON 27-03-2008 IN RESPECT OF CAP ITAL OF RS.20.95 LAKHS INTRODUCED BY TWO PARTNERS AS PROVIDED UNDER RULES 46A(1) OF IT RULES. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE AD DITIONAL EVIDENCE PRODUCED BEFORE HIM AND SHOULD HAVE DELETED THE SAI D ADDITION. 3. THE LD. AR SUBMITTED THAT SINCE THE ADDITIONAL G ROUND IS CONNECTED WITH GROUND NO.2 IN THE APPEAL THIS BEIN G PURELY LEGAL ISSUE SHOULD BE ADMITTED. ON THE OTHER HAND THE L D. DR VEHMENTLY ITA N O.3239/AHD/08 3 OPPOSED THE ADMISSION OF THE AFORESAID ADDITIONAL GROUND ON THE GROUND THAT NO REASONS HAVE BEEN GIVEN BY THE LD. AR AS TO WHY THIS GROUND WAS NOT RAISED EARLIER AT THE TIME OF F ILING OF THE APPEAL. IN THIS CONNECTION THE LD. DR RELIED UPON DECISION S IN BATLIBOI & CO.LTD. VS. DCIT 67 ITD 397(BOM.) AND S KUMAR TURE MANUFACTURING CO. LTD. VS. DCIT 61 ITD 326(INDORE) AND CONTENDED THAT IN THE ABSENCE OF ANY REASONS THIS GROUND CAN NOT BE ADMI TTED. 4 WE HAVE HEARD BOTH THE PARTIES ON ADMISSION OF AD DITIONAL GROUND OF APPEAL AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER THE TRIBUNAL IS DUTY BOU ND TO ADMIT THE ADDITIONAL GROUND OF APPEAL EVEN WHEN THE ASSESSEE DOES NOT EX PLAIN THE CIRCUMSTANCES AS TO WHY SUCH GROUND COULD NOT BE RAISED EARLIER. SEC TION 253 OF THE INCOME-TAX ACT 1961 PROVIDES FOR AN APPEAL TO THE TRIBUNAL A GAINST VARIOUS DECISIONS OF THE INCOME-TAX AUTHORITIES REFERRED TO THEREIN. SUB-SEC TION (3) OF SECTION 253 PROVIDES THE LIMITATION OF 60 DAYS FROM THE COMMUNICATION OF THE ORDER SOUGHT TO BE APPEALED. THOUGH THERE IS LIMITATION OF 60 DAYS UND ER SUB-SECTION (3) SUB-SECTION (5) OF SECTION 253 EMPOWERS THE TRIBUNAL TO PERMIT THE FILING OF THE APPEAL OR MEMORANDUM OF CROSS-OBJECTION AFTER THE SPECIFIED P ERIOD IF IT IS SATISFIED THAT THERE WAS SUFFICIENT CAUSE FOR NOT PRESENTING IT WI THIN THAT PERIOD. IN THE CASE WHERE THE APPELLANT FILES AN APPEAL WITHIN THE PERI OD OF LIMITATION IT IS WELL SETTLED LAW THAT THE APPELLATE AUTHORITIES IF SATISFIED TH AT THE ADDITIONAL GROUND RAISED WAS BONA FIDE AND THE SAME COULD NOT HAVE BEEN RAISED E ARLIER FOR GOOD REASONS MAY IN ITS DISCRETION PERMIT THE ASSESSEE TO RAISE AN ADDITIONAL GROUND EVEN AFTER THE EXPIRY OF THE LIMITATION PROVIDED FOR FILING AN APP EAL. THE TRIBUNAL HAS GOT THE DISCRETION TO EITHER ADMIT THE ADDITIONAL GROUND OF APPEAL OR NOT TO ADMIT THE SAME. WHEN WE SAY THAT THE TRIBUNAL HAS THE DISCRET ION IT DOES NOT MEAN THAT THE TRIBUNAL DOES NOT HAVE THE DUTY TO EXERCISE THE DIS CRETION JUDICIOUSLY. IT IS THE DUTY OF A JUDICIAL AUTHORITY TO EXERCISE ITS DISCRE TION MOST JUDICIOUSLY. THEREFORE WHEN A DISCRETION IS VESTED IN THE JUDICIAL AUTHORI TIES IT IS DUTY BOUND TO SATISFY ITSELF ABOUT THE EXISTENCE OF THE GOOD REASONS BEFO RE EXERCISING THE DISCRETION IN FAVOUR OF THE ASSESSEE. IN THIS CONNECTION WE MAY REFER TO THE FOLLOWING ITA N O.3239/AHD/08 4 OBSERVATION OF THEIR LORDSHIPS OF THE HONBLE SUPRE ME COURT IN THE CASE OF JUTE CORPN. OF INDIA LTD. VS. CIT 187 ITR 688 : ' THE OBSERVATIONS IN THE CASE OF GURJARGRAVURES (P.) LTD. [1978] 111 ITR 1 (SC) DO NOT RULE OUT A CASE FOR RAISING AN ADDITIONAL GR OUND BEFORE THE APPELLATE ASSISTANT COMMISSIONER IF THE GROUND SO RAISED COUL D NOT HAVE BEEN RAISED AT THE STAGE WHEN THE RETURN WAS FILED OR WHEN THE ASSESSM ENT ORDER WAS MADE OR IF THE GROUND BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIR CUMSTANCES OR LAW. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF SU CH A NEW PLEA IN AN APPEAL AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. IF THE APPELLATE ASSISTANT COMMISSIONER IS SATISFIED HE WOULD BE ACTING WITHI N HIS JURISDICTION IN CONSIDERING THE QUESTION SO RAISED IN ALL ITS ASPECTS. HE MUST BE SATISFIED THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME COULD NOT HA VE BEEN RAISED EARLIER FOR GOOD REASONS. WHILE PERMITTING THE ASSESSEE TO RAIS E AN ADDITIONAL GROUND THE APPELLATE ASSISTANT COMMISSIONER SHOULD EXERCISE HI S DISCRETION IN ACCORDANCE WITH LAW AND REASON.' 4.1. IT IS EVIDENT FROM THE AFORESAID OBSERVATIO NS OF THE HONBLE SUPREME COURT THAT IT IS THE DUTY OF THE APPELLANT TO SATISFY THE APPELLATE AUTHORITY THAT THE ADDITIONAL GROUND RAISED WAS BONA FIDE AND THE SAM E COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASONS. IT MAY BE PERTINENT TO ME NTION THAT THEIR LORDSHIPS OF THE HONBLE SUPREME COURT IN THE CASE OF JUTE CORPN. OF INDIA LTD. DID NOT OVERRULE THE DECISION IN THE CASE OF ADDL. CIT V. GURJARGRAV URES (P.) LTD. [1978] 111 ITR 1 (SC) BUT CLARIFIED THE LAW ON THE ISSUE. THE SAID J UDGMENT OF THE SUPREME COURT HOWEVER DOES NOT LAY DOWN THE LAW THAT THE APPELLA TE ASSISTANT COMMISSIONER OR THE TRIBUNAL IS BOUND TO ADMIT EVERY ADDITIONAL GRO UND OF APPEAL RAISED BY THE ASSESSEE IF IT ARISES OUT OF THE IMPUGNED ORDER. IF THAT VIEW IS TAKEN IT WILL DEFEAT THE PROVISIONS OF THE ACT WHICH PROVIDE FOR LIMITA TION FOR FILING OF THE APPEALS. 4.2 UNDOUBTEDLY THERE IS NOTHING IN SECTION 2 54(1) OF THE INCOME-TAX ACT WHICH LIMITS THE JURISDICTION OF THE APPELLATE TRIB UNAL IN ANY MANNER. THE PHRASE 'PASS SUCH ORDER THEREON' THEREIN DOES NOT IN ANY WAY RESTRICT THE JURISDICTION OF THE TRIBUNAL BUT ON THE CONTRARY CONFERS THE WIDE ST POSSIBLE JURISDICTION ON THE APPELLATE TRIBUNAL INCLUDING JURISDICTION TO PERMIT ANY ADDITIONAL GROUND OF APPEAL IF IN ITS DISCRETION AND FOR GOOD REASONS IT THI NKS IT NECESSARY OR PERMISSIBLE TO DO SO. THE TRIBUNAL HAS THE DISCRETION TO ALLOW RAI SING OF ADDITIONAL GROUND OF APPEAL AND IT HAS TO BE SATISFIED ABOUT THE EXISTE NCE OF GOOD REASONS FOR THE OMISSION OF THE GROUND AT THE ORIGINAL STAGE. ITA N O.3239/AHD/08 5 4.3. IN THE INSTANT CASE BEFORE US WHEN THE A PPEAL WAS FILED BEFORE THE ITAT ON 19.9.2008 NO SUCH GROUND RELATING TO THE ADMISS ION OF ADDITIONAL EVIDENCE BY THE LD. CIT(A) HAS BEEN RAISED. THE APPEAL WAS FIXE D FOR HEARING ON 19.11.2008 & AGAIN ON 9.11.2010. NO SUCH GROUND WAS RAISED UNTIL 1.11.2010. NOW THE LD. AR APPEARING BEFORE US SOUGHT LEAVE TO RAISE THE AFORESAIDADDITIONAL GROUND AND NO REASONS HAVE BEEN ADDUCED AT ALL AS TO WHY S UCH A GROUND COULD NOT BE RAISED EARLIER IN THE MEMO OF THE APPEAL. IN THESE CIRCUMSTANCES ESPECIALLY WHEN IN THIS CASE THE LEARNED COUNSEL FOR THE ASSES SEE DID NOT ADDUCE ANY REASON AT ALL FOR OMISSION OF THE ADDITIONAL GROUND IN THE MEMO OF APPEAL FILED BEFORE THE TRIBUNAL WE HAVE NO OPTION BUT TO DECLI NE TO EXERCISE THE DISCRETION IN FAVOUR OF THE ASSESSEE. AS ALREADY POINTED OUT THE DISCRETION VESTED IN THE JUDICIAL AUTHORITY CANNOT BE EXERCISED ARBITRARILY. THERE IS A DUTY UPON THE TRIBUNAL TO EXERCISE THE DISCRETION IN A MOST JUDICIAL MANNE R. WHEN THE REQUIREMENT OF LAW IS TO SATISFY THE TRIBUNAL ABOUT THE EXISTENCE OF G OOD REASONS FOR THE OMISSION OF THE GROUND IN THE ORIGINAL APPEAL THEN ON THE FAILU RE OF THE ASSESSEE OR HIS REPRESENTATIVE TO GIVE ANY REASON MUCH LESS A GOOD REASON FOR THE OMISSION THE CONSEQUENCES ARE OBVIOUS. IN THE GIVEN CIRCUMSTANCE S WE CANNOT ENTERTAIN THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. THIS VIEW OF OURS IS SUPPORTED BY THE DECISIONS RELIED UPON BY THE LD. D R IN BATLIBOI & CO.LTD.(SUPRA) AND S KUMAR TURE MANUFACTURING CO. L TD.(SUPRA) 4.4 IN VIEW OF THE FOREGOING ON A CONSIDER ATION OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US WE HOLD T HAT NO REASONS AT ALL HAVE BEEN SHOWN AS TO WHY THE AFORESAID GROUND WAS NOT R AISED AT THE TIME OF FILING THE APPEAL BEFORE THE TRIBUNAL. THERE IS NOTHING ON REC ORD TO ENABLE US TO HOLD THAT THERE WAS BONA FIDE OMISSION ON THE PART OF THE ASS ESSEE IN RAISING THE IMPUGNED ADDITIONAL GROUND. WE THEREFORE DECLINE TO ADMIT THE ADDITIONAL GROUND SOUGHT TO BE TAKEN BEFORE US. 5. ADVERTING NOW TO GROUND NO.1 IN THE APPEAL F ACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL I NCOME FILED ON 31- 10-2005 BY THE ASSESSEE DOING OFFSET PRINTING BY WAY OF JOB WORK AFTER BEING PROCESSED ON 12.4.2006 U/S 143(1)(A) OF THE INCOME-TAX ITA N O.3239/AHD/08 6 ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] W AS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 05-07- 2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE REFL ECTED GP @30.09% ON TOTAL TURNOVER OF RS.1 79 72 499/- IN T HE YEAR UNDER CONSIDERATION AS AGAINST GP @ 36.54% ON THE TURNOVE R OF RS.1 68 77 032/- IN THE IMMEDIATELY PRECEDING YEAR. GP RATE IN THE A.Y. 2003-04 WAS 34.54%. THE AO FURTHER NOTICED THA T THE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER THE REC EIPT / ISSUE REGISTER IN RESPECT OF RAW MATERIALS NOR SEPARATE S TOCK REGISTER FOR THE FINISHED PRODUCTS . TO A QUERY BY THE AO SEEK ING COPIES OF RECEIPT AND ISSUE REGISTER AS ALSO DETAILS IN THE P RESCRIBED FORMAT MENTIONED ON PAGE 2 OF THE ASSESSMENT ORDER THE AS SESSEE DID NOT FURNISH THE DESIRED DETAILS NOR THE RELEVANT QUANTI TATIVE DETAILS AS MENTIONED IN COLUMN 28A AND 28B OF FORM 3CD. 5.1 THE AO FURTHER NOTICED THAT THE ASSESSEE HAD SO LD THEIR OLD OFFSET MACHINES TO TWO VENDORS VIDE BILLS DATED 07- 01-2005 & 30-01- 2005 WHILE A NEW OFFSET MACHINE WAS PURCHASED VIDE BILL DATED 08- 01-2005.HOWEVER ON PERUSAL OF COMPARATIVE FIGURES BEING PROVIDED BY THE ASSESSEE VIDE LETTER DATED 18-06-2007 IT WA S FOUND THAT EXPENSES TOWARDS POWER FUEL WAGES LABOUR CHARGES ETC. HAD NOT REDUCED IN THE MONTH OF JANUARY 2005 WHILE THE JO B WORK INCOME AND THE DIRECT SALE INCOME HAD INCREASED IN THE MO NTH VIS-A-VIS- EXPENSES AND JOB INCOME IN OTHER MONTHS OF THE FINA NCIAL YEAR PRIMA FACIE LEADING TO INCORRECTNESS OF THE ASSESSE E'S BOOKS OF ACCOUNTS. 5.2 THE AO FURTHER OBSERVED THAT THE SCHEDULE OF ASSETS ATTACHED TO THE BALANCE SHEET REVEALED NEW MACHINERY OF RS .5 71 240/- WHILE DETAILS FURNISHED REFLECTED THAT THE ASSESSE E HAD PURCHASED TWO NEW MACHINES WORTH RS.39 62 400/- & RS.99.840/- AND HAD SOLD SIMULTANEOUSLY TWO MACHINES WORTH RS.26 00 000/- AN D ITA N O.3239/AHD/08 7 RS.8 91 000/-. THE ASSESSEE CREDITED ONLY THE NET FIGURE IN THE SCHEDULE OF ASSETS. ACCORDING TO THE AO THIS WAS NOT A CORRECT PRACTICE OF ACCOUNTING AND TANTAMOUNT TO DEFECT IN THE BOOKS. 5.3 APART FROM THE ABOVE THE AO ISSUED NOTICE U /S 133(6) TO FEW PARTIES MENTIONED AT SL. NO. 1 TO 18 IN PARA 5.2 OF THE ASSESSMENT ORDER IN ORDER TO ASCERTAIN GENUINENESS OF THE TR ANSACTIONS AND FOUND THAT I. THE BALANCE OF THE ASSESSEE IN THE ACCOUNTS OF ACTIVE DESIGNERS STOOD AT RS.1873519/- DB AS AGAINST RS.127733/-DB SHOWN IN THE BALANCE SHEET BY THE ASSESSEE; II THE BALANCE OF THE ASSESSEE IN THE ACCOUNTS OF AMRITA CREATION PVT. LTD. STOOD AT RS.127733/- DB AS AGA INST RS.749309/- DB SHOWN IN THE BALANCE SHEET BY THE ASSESSEE;. III. THE BALANCE OF THE ASSESSEE IN THE ACCOUNTS O F AAYUSHI GRAPHICS STOOD AT RS.473102/- DB AS AGAINST RS.1873519/- DB SHOWN IN THE BALANCE SHEET BY THE ASSESSEE; IV. THE NOTICE ISSUED TO M/S. SANGEETA PRINT AR T MUMBAI WAS RETURNED BACK BY POSTAL AUTHORITIES WHILE M/S. MEEN U ART DID NOT RESPOND;AND . V. THE NOTICE ISSUED U/S 133(6) TO THE P ARTIES MENTIONED AT SR. NO. 1 TO 10 & 11 TO 13 IN PARA 5.2 OF THE ASSES SMENT ORDER WERE RETURNED BACK BY THE POSTAL AUTHORITIES AND THE ASS ESSEE DID NOT FURNISH ANY OTHER ADDRESS 5.4 WHEN AFORESAID FACTS WERE CONFRONTED VIDE LET TER DATED 2.11.2007 THE ASSESSEE DID NOT FURNISH ANY REPLY . THE INSPECTOR DEPUTED TO ASCERTAIN THE WHEREABOUTS OF VARIOUS FIR MS VIZ. M/S. GEETA ART M/S. PARV PRINTS M/S. PATEL SHAH & CO. M/S. SHREE JAGDAHEMBA ENTERPRISE AND M/S. VRUNDA OFFSET LOCAT ED AT 10 SEEMA ROW HOUSES .GHOD DOD ROAD SURAT REPORTED T HAT NONE OF ITA N O.3239/AHD/08 8 THESE FIRMS EXISTED AT THE ADDRESS GIVEN BY THE ASS ESSEE; INSTEAD THE SAID PREMISES WAS OWNED BY ONE MR. DIVYESH S. L AKDAWALA WHO WAS OCCUPANT OF THE PREMISES SINCE 1984 AND HE DENI ED KNOWING ANY OF THESE FIRMS. 6. IN VIEW OF THE AFORESAID DEFECTS NOTICED IN THE ACCOUNTS AND IN THE ABSENCE OF ANY EXPLANATION BY THE ASSESSEE TH E AO OBSERVED THAT TRADING RESULTS WERE NOT VERIFIABLE AND THE C ORRECT INCOME COULD NOT BE DEDUCED THEREFROM ESPECIALLY WHEN THE ASSESSEE DID NOT RESPOND TO NOTICE DATED 15.10.2007 & 2.11.2007 NOR PRODUCED THE RELEVANT STOCK RECORDS AND OTHER RECORDS/DETAIL S SOUGHT BY THE AO. ACCORDINGLY THE AO WHILE RELYING UPON DECISIO NS IN JAMNA DAS RAMESHWAR DAS VS. CIT (1952) 21 ITR 109 (PUNJ) CIT VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 182 (SC); CIT VS. MC. MILAN & CO. (1958) 33 ITR 182 (SC) ;HOWRAH TRADING CO. (P.) LTD. VS. CIT (1968) 67 ITR 582 (CAL.) S.N.NAMASIVAYAM CHETTIAR VS. CIT 38 ITR 579(SC) AND DHONDIRAM DALICHAND VS. CIT 81 ITR 609 (BOM.) REJECTED THE BOOK RESULTS HAVING RECOURSE TO PROVI SIONS OF SEC. 145(3) OF THE ACT AND THEREAFTER APPLYING THE AVER AGE GP RATE OF 33.72% OF THE PRECEDING TWO YEARS ADDED AN AMOUNT OF RS.6 52 219/- TO THE INCOME. 7. ON APPEAL THOUGH THE ASSESSEE CONTENDED THA T BECAUSE OF THE INCREASE IN THE PRICES OF RAW MATERIALS THE GR OSS MARGINS OF THE BUSINESS HAD DETERIORATED LD. CIT(A) CONCLUDED AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FINDINGS AND CO NCLUSION OF THE A.O AND ALSO THE BRIEF WRITTEN SUBMISSIONS OF THE A.R. I AM OF THE VIEW THAT THE CLAIM OF INCREASE IN THE COST OF RAW MATERIALS DOES NOT SATISFACTORILY EXPLAIN THE FALL IN THE GP RATIO BY 6.45% NOT DOES IT REBU T ANY OF THE FINDINGS OF THE AO REGARDING THE INCORRECT AND INCOMPLETE NATURE OF THE ASSESSEE'S BOOKS OF ACCOUNT. THUS IT HAS NOT BEEN EXPLAINED AS TO W HY MOST OF THE ALLEGED CREDITORS/SELLERS WERE NOT TRACEABLE AT THE GIVEN A DDRESSES; WHY IT WAS NOT POSSIBLE TO MAINTAIN QUANTITATIVE DETAILS OF COLOUR S AND CHEMICALS; WHY DAILY STOCK AND PRODUCTION REGISTER HAD NOT BEEN MA INTAINED SEPARATELY FOR OWN PRODUCTION AND FOR JOB WORK; WHY NO PRODUCTION DETAIL WAS FURNISHED ITA N O.3239/AHD/08 9 BEFORE THE A.O AS ALSO OTHER DEFECTS AS POINTED OU T IN THE SHOW-CAUSE NOTICE DATED 2-11-2007 INCLUDING THE DISCREPANCY I N THE CLOSING BALANCES OF THE ACCOUNTS OF VARIOUS PARTIES IN THE BOOKS OF THE ASSESSEE AND THE CLOSING BALANCES IN THE ASSESSEE'S ACCOUNT IN THE B OOKS OF SUCH PARTIES. EVEN WITH REGARD TO THE INCREASE IN RAW MATERIAL P RICES NO EVIDENCE HAD BEEN FURNISHED AND THIS EXPLANATION HAD NOT BEEN P RESENTED BEFORE THE AO. THEREFORE I AM OF THE VIEW THAT THE A.O WAS FU LLY JUSTIFIED IN REJECTING THE BOOK RESULTS U/S. 145(3) OF THE I.T ACT AND AP PLYING THE G.P RATIO OF 33.72% WHICH WAS THE APPROXIMATE AVERAGE OF THE G.P RATIOS OF THE CURRENT YEAR AND THE PRECEDING YEAR. THE ADDITION O F RS.6 52 219 IS CONFIRMED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. AR IN HIS W RITTEN SUBMISSIONS POINTED OUT THAT NO PROPER OPPORTUNITY HAS BEEN PR OVIDED AND THE LD. C.I.T. (A) FAILED TO CONSIDER THAT THE COST FAC TOR SERIOUSLY AFFECTED IN ACHIEVING BETTER RESULT OF GROSS PROFIT AND THE PRICES OF RAW MATERIALS HAD GONE UP. SINCE THE ASSESSEE MAIN TAINED STOCK REGISTER AND PURCHASES WERE SUPPORTED BY PURCHASE B ILLS AND IT WAS HUMANLY IMPOSSIBLE TO MAINTAIN THE CONSUMPTION RECO RDS WHILE EXPENSES IN JANUARY RELATED TO TRADING IN PAPER BOA RD THE DEFECTS POINTED OUT BY THE AO DID NOT WARRANT IN REJECTION OF BOOKS OF ACCOUNTS. WHILE ADMITTING THAT THE DETAILS AS CALLE D FOR PARTICULARLY REGARDING STOCK RECONCILIATION OF ACCOUNTS OF DEBT ORS/CREDITORS EXPLANATION IN RESPECT OF CAPITAL BROUGHT IB BY TH E TWO PARTNERS THOUGH GENUINE ETC. COULD NOT BE PRODUCED THE LD. AR CONTENDED THAT IN ANY CASE ADDITION WAS EXCESSIVE. ON THE OTH ER HAND THE LEARNED DR SUPPORTED THE CONCLUSION OF THE LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES GONE THROUGH TH E FACTS OF THE CASE AND CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. INDISP UTABLY THE ASSESSEE REFLECTED GP @ 30.09% ON TOTAL TURNOVER OF RS.1 79 72 499/- IN TH E YEAR UNDER CONSIDERATION AS AGAINST GP @ 36.54% ON TURNOVER OF RS.1 68 77 032/- IN THE IMMEDIATELY PRECEDING YEAR. EVEN THOUGH THERE WAS SUBSTANTIAL DECLINE IN GP VIS--VIS TRADING RES ULTS OF THE PRECEDING YEAR THERE IS NOTHING ON RECORDS TO SUGGEST THAT THE ASSESSE E EXPLAINED THIS SUBSTANTIAL ITA N O.3239/AHD/08 10 FALL IN GP WITH ANY COGENT EVIDENCE . THE AO FOUND THAT STOCK WAS NOT AMENABLE TO VERIFICATION IN THE ABSENCE OF STOCK RECORDS NOR THE ASSESSEE PRODUCED THE RELEVANT RECORDS/DETAILS SOUGHT BY THE AO AND NOR E VEN REPLIED TO VARIOUS SHOWCAUSE NOTICES ISSUED . ADMITTEDLY THE RELEVANT DETAILS SOUGHT BY THE AO WERE NOT FURNISHED NOR THE ASSESSEE CARED TO EXPLAI N THE AFORESAID DISCREPANCIES NOR EVEN CARED TO RECONCILE THE ACCOUNTS VIS--VIS INFORMATION COLLECTED BY THE AO U/S 133(6) FROM THE AFORESAID THREE PARTIES MENTION ED IN PARA 5.3 ABOVE. THE LD. CIT(A) FOUND THAT THE ASSESSEE FAILED TO EXPLAIN TH E DISCREPANCES POINTED OUT BY THE AO AND EVEN WITH REGARD TO THE INCREASE IN RAW MATERIAL PRICES NO EVIDENCE HAD BEEN FURNISHED. THEREFORE THE LD. CIT(A) UPHEL D THE FINDINGS OF THE AO IN REJECTING BOOK RESULTS AND ESTIMATION OF GROSS PROF ITS. THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL BEFORE US DIS PUTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LOWER AUTHORITIES. IN THESE C IRCUMSTANCES WE ARE OF THE OPINION THAT ONCE THE ASSESSEE FAILED TO FURNISH TH E RELEVANT DETAILS AND SUBSTANTIATE THE TRADING RESULTS FOR THE RELEVANT PERIOD UNDER CONSIDERATION IT WAS OPEN TO THE AO AND THE LD. CIT(A) TO REJECT THE BOO K RESULTS AND ESTIMATE THE GROSS PROFIT. IT IS NOT A CASE WHERE BOOKS OF ACCOU NT ARE PROPERLY MAINTAINED AND THE ASSESSING OFFICER HAS SUBSTITUTED HIS OWN ESTIM ATE IGNORING THE BOOKS OF ACCOUNT WITHOUT GIVING ANY REASONS OR OPPORTUNITY. IT MAY BE OBSERVED UNDER THE CIRCUMSTANCES THAT IT IS DIFFICULT TO CATALOGUE VAR IOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJEC TION OF ACCOUNTS ON THE GROUND THAT ACCOUNTS ARE NOT COMPLETE AND FROM WHIC H THE CORRECT PROFIT CANNOT BE DEDUCED. WHETHER PRESENCE OR ABSENCE OF STOCK RE GISTER IS MATERIAL OR NOT WOULD DEPEND UPON THE TYPE OF BUSINESS. IN THE CASE UNDER CONSIDERATION DESPITE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO T HE ASSESSEE CHOSE NOT TO APPEAR BEFORE HIM NOR REPLIED TO VARIOUS SHOWCAUSE NOTICES ISSUED BY HIM NOR EVEN EXPLAINED THE DEFECTS POINTED OUT. ADMITTEDLY RECORDS/DETAILS SOUGHT BY THE AO WERE NOT PRODUCED. CONSEQUENTLY THE STOCK WAS NOT AMENABLE TO VERIFICATION. IT IS TRUE THAT ABSENCE OF STOCK REG ISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER WHERE THE ABSENCE OF STOCK REG ISTER ETC. IS COUPLED WITH OTHER FACTORS LIKE NOT CARING TO REPLY TO VARIOUS S HOWCAUSE NOTICES ISSUED BY THE AO NOR EVEN PRODUCING THE RELEVANT DETAILS/RECORD O R EVEN RECONCILING THE ITA N O.3239/AHD/08 11 ACCOUNTS GIVE RISE TO LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS . SUCH IS THE SITUATION IN THE INSTANT CASE AND HENCE WE HOLD THAT THE LD. CIT(A) IS QUITE JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO IN REJECTING THE BOOK RESULTS HAVING RECOURSE TO PROVISIONS OF SEC.145(3) OF THE ACT THIS VIEW OF OURS IS ALSO FORTIFIED BY THE DECISION OF HONBLE ORISSA HIGH CO URT IN THE CASE OF RATANLAL OMPRAKASH VS. CIT 132 ITR 640(ORISSA) AWADHESH PRA TAPSINGH ABDUL RAHEMAN & BROS VS CIT (1994) 210 ITR406(ALL) AND DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KY PILLIAH AN D SONS 63 ITR 411(SC). 9.1 AS REGARDS ESTIMATION OF PROFITS NO DOUBT THE AO/CIT(A) SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TOTALLY ARBITRARILY BUT THERE I S NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT AND IT IS THE ASSESSEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS AND DETAILS.[ KACHWALA GEMS VS JCIT 288 ITR 10 (2007)(SC) ]. SIN CE THE ASSESSEE DID NOT SUBSTANTIATE THE TRADING RESULTS WITH COGENT EVIDE NCE BEFORE THE AO OR THE LD. CIT(A) NOR EVEN ANY MATERIAL HAS BEEN PLACED BEFOR E US SO AS TO TAKE A DIFFERENT VIEW IN THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) WHILE UPHOLDING REJECTION OF BOOK RESULTS AN D SUSTAINING THE ADDITION APPLYING THE AVERAGE GP RATE OF THE IMMEDIATE PRECE DING TWO ASSESSMENT YEARS. IT IS TRUE THAT ASSESSING OFFICER OR THE CIT(A) ARE NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND ARE ENTITLED TO ACT ON MATERIALS WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN COURT OF LAW NEVERTHELESS THE ASSESSI NG OFFICER SHOULD ADOPT A METHOD WHICH MUST REFLECT THE PROFITS TRULY AND JUS TLY[ GEMINI PICURES LTD. VS CIT (1958) 33 ITR 547 (MAD).] FOR ESTIMATING THE GROSS PROFIT THE LD. CIT(A) CAN ALWAYS HAVE A LOOK AT THE MARGIN RETURNED IN COMPAR ABLE CASES OR EVEN IN ASSESSEES OWN CASE. WE ARE OF THE OPINION THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE ESPECIALLY WHEN THERE WAS ABNORMAL FAL L IN GP RATE IN THE PERIOD UNDER CONSIDERATION VIS--VIS PRECEDING TWO ASSESSM ENT YEARS AND NO COGENT EVIDENCE HAS BEEN PLACED BEFORE THE LD. CIT(A) OR E VEN BEFORE US IN SUPPORT OF BOOK RESULTS THE LD. CIT(A) IS JUSTIFIED IN UPHOL DING THE FINDINGS OF THE AO APPLYING THE AVERAGE GP RATE[33.72%] OF THE IMMEDI ATE PRECEDING TWO ASSESSMENT YEARS WHILE UPHOLDING REJECTION OF BOOK RESULTS HAVING RECOURSE TO ITA N O.3239/AHD/08 12 PROVISIONS OF SECTION 145(3) OF THE ACT. IN THIS V IEW OF THE MATTER AND CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). THEREFORE GROUND NO 1 IN THE APPEAL IS DISMISSED. 10. GROUND NO.2 RELATES TO DISALLOWANCE OF 20% OF THE MOBILE AND TELEPHONE EXPENSES. THE AO FOUND ON PERUSAL OF P&L ACCOUNT THAT THE ASSESSEE DEBITED EXPENSES UNDER THE FOLLOWING HEADS 1. MOBILE EXPENSES RS.1 04 729/- 2. TELEPHONE EXPENSES RS. 71 489/- TO A QUERY BY THE AO SEEKING BIFURCATION OF THE E XPENDITURE ATTRIBUTABLE TO BUSINESS USE AND PERSONAL USE THE ASSESSEE DID NOT FURNISH ANY REPLY NOR REPLIED TO THE SHOW CAUSE NOT ICE . SINCE THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM THAT THE ENTIRE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS THE AO CONCLUDED THAT THE ELEMENT OF PERSONAL USE CANNOT BE RULED OUT. ACCORDINGLY THE AO DISALLOWED AN AMOUNT OF R S.35 244/- BEING 20% OF THE ABOVE EXPENSES CONSIDERING IT TO BE NON- BUSINESS EXPENDITURE. 11. ON APPEAL THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO THEREBEING NO RECORD OF THE USAGE OF THE TELEPHONES . 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) IGNORED THE FACT THAT THE ENTIRE EXPENDITURE IS SPENT EXCLUSIVELY FOR THE BUSINESS P URPOSE. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE LEARNED CIT(A). 13. AFTER HEARING BOTH THE PARTIES AND CONSIDERIN G THE FACTS OF THE CASE WE FIND THAT THE LD. AR HAS NOT REFERRED US TO ANY MA TERIAL WARRANTING INTERFERENCE ITA N O.3239/AHD/08 13 WITH THE FINDINGS OF THE LD. CIT(A). SINCE PERSONA L USE OF TELEPHONES BY THE PARTNERS OF THE ASSESSEE FIRM AND THEIR FAMILY MEM BERS OR STAFF HAS NOT BEEN DENIED NOR IT WAS CLAIMED THAT THE PARTNERS OR TH EIR FAMILY MEMBERS HAD ANY INDEPENDENT TELEPHONES FOR PERSONAL USE IN OUR O PINION DISALLOWANCE OF 20% OF THE EXPENSES ON TELEPHONES/MOBILES IN THE LIGHT OF PROVISIONS OF SEC. 38(2) OF THE ACT IS REASONABLE . THEREFORE GROUND NO.2 IN THE APPEAL OF THE ASSESSEE IS REJECTED. 14. GROUND NO. 3 RELATES TO DISALLOWANCE OF 10% OF THE EXPENSES AS MENTIONED IN PARA 8.1 OF THE ASSESSMENT ORDER. T HE AO NOTICED THAT THE ASSESSEE DEBITED FOLLOWING EXPENSES UNDE R VARIOUS HEADS: EXPENSES HEAD AMOUNT IN RS. CONSULTANCY CHARGES 57 028 CONVEYANCE 30 771 KASAR 3 28 484 LEGAL & PROFESSIONAL 28 520 POSTAGE 1 438 PROCESS FEES 45 876 STATIONERY & PRINTING 11 546 SUBSCRIPTION FEES 13 137 SECURITY CHARGES 1 46 750 TOTAL 6 63 550 SINCE DESPITE SUFFICIENT OPPORTUNITY DURING THE AS SESSMENT PROCEEDINGS AS WELL AS VIDE LETTERS DATED 15-10-200 7 AND 02-11- 2007 THE ASSESSEE DID NOT TURN UP NOR PRODUCED AN Y BOOKS OF ACCOUNTS AND/OR PRIMARY RECORDS VOUCHERS BILLS ET C. FOR VERIFICATION OF THE AFORESAID EXPENDITURE RELYING UPON DECISIONS IN CIT VS. CALCUTTA AGENCY LTD. 19 ITR 191(CAL.) LAXMINARAYAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634(SC) DEYSS MEDICAL STOR ES MANUFACTURING PVT. LTD. VS.CIT 162 ITR 630(CAL.) SA BALGARH INDUSTRIES LTD. VS. CIT 46 ITR 978(ALL.) CIT VS. CH ANDRAVILAS HOTEL 164 ITR 102(GUJ) ASSAM PESTICIDES & AGRO CHEM ICALS VS. ITA N O.3239/AHD/08 14 CIT 227 ITR 846(GAU.) AND JAIPUR ELECTRO (P) LTD. V S. CIT 134CTR(RAJ)237 THE AO DISALLOWED 20% OF THE AFORESAID EXPENSES RESULTING IN DISALLOWANCE OF RS.1 37 210/-. 15. ON APPEAL THE LD. CIT(A) REDUCED THE DISALLOWA NCE TO 10% OF RS.6 63 550/- ON THE GROUND THAT THE RELEVANT DETA ILS WERE NOT FURNISHED NOR THESE COULD BE ADMITTED UNDER RULE 46 A OF THE IT RULES 1962 AS THE ASSESSEE WAS NOT PREVENTED BY SUF FICIENT CAUSE FROM FURNISHING REQUISITE EXPLANATION AND EVIDENCE BEFOR E THE AO. 16. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) OUGHT TO HAVE DEL ETED THE ENTIRE ADDITION CONSIDERING THE NATURE OF EXPENSES WHICH INCLUDED SECURITY CHARGES STATIONERY CONVEYANCE CHARGES ETC.. THE L EARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE AUTHORIT IES BELOW. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT DESPITE SUFFICIENT OPPORTUNI TY PROVIDED BY THE AO THE ASSESSEE DID NOT FURNISH ANY EVIDENCE NOR P RODUCED THE RELEVANT BOOKS OF ACCOUNTS AND BILLS/VOUCHERS IN O RDER TO SUBSTANTIATE THEIR CLAIM. EVEN THEN THE AO DISALLOW ED A NOMINAL AMOUNT OF 20%. ON APPEAL CONSIDERING THE PLEA OF T HE ASSESSEE THE LD. CIT(A) REDUCED THE DISALLOWANCE TO 10%. TH E LD. AR APPEARING BEFORE US DID NOT PLACE ANY MATERIAL THAT THE DISALLOWANCE SUSTAINED WAS UNREASONABLE SO AS TO ENABLE US TO TA KE A DIFFERENT VIEW IN THE MATTER. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IN THIS CASE DESPITE SUFFICIENT OPPOR TUNITY ALLOWED THE ASSESSEE DID NOT CARE TO REPLY TO SHOWCAUSE NOTICES NOR PRODUCED RELEVANT RECORDS BEFORE THE AO/CIT(A). IN THESE CIR CUMSTANCES WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF T HE LD. CIT(A). THEREFORE GROUND NO. 3 IN THE APPEAL IS DISMISSED. ITA N O.3239/AHD/08 15 18. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE RELAT ES TO AN ADDITION OF RS.20 95 000/- U/S 68 OF THE ACT. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE CLAIMED THAT T HE TWO PARTNERS IN THE FIRM NAMELY MR. MAZHAR G . KAPADIA AND MR. NEMESHBHAI I. NAIK HAD INTRODUCED SUM OF RS.10 10 0 00/- AND RS.10 85 000/- IN THEIR RESPECTIVE CAPITAL ACCOUNTS . DESPITE SUFFICIENT OPPORTUNITY ALLOWED IDE LETTER DATED 15- 10-2007 & THEREAFTER VIDE SHOW CAUSE NOTICE DATED 02-11-2007 THE ASSESSEE DID NOT RESPOND NOR SUBMITTED EVIDENCE OF INTRODUC TION OF MONEY BY THE PARTNERS IN THE FIRM. SINCE THE ASSESSEE FAILED TO ESTABLISH THE NATURE AND SOURCE OF THESE CREDITS RELYING ON DEC ISIONS IN KHAN MOHAMMAD HANIF VS. CIT (50 ITR 1)(SC) RAJSHREE SYNTHETICS PV T. LTD. VS. CIT (256 ITR 331) (RAJ.) ITO VS. DIZA HOLDINGS PVT. LTD.(255 ITR 573 ) (KER) R.B.MITTAL VS. CIT 246 ITR 283) (AP) OCEANIC PRODUCTS EXPORTING CO. VS . CIT (241 ITR 497) (KER) K.M.SADHUKHAN AND SONS PVT. LTD. VS. CIT (239 ITR 7 7) (CAL) CIT VS. R.S. RATHORE (212 ITR 390) (RAJ) CIT VS. KORLAY TRADING CO. (1998) 232-ITR-820 (CALCUTTA) AND PRECISION FINANCE PVT. LTD. REPORTED IN 208 ITR. 465(CAL) THE AO ADDED THE AMOUNT OF RS.20 95 000/- UNDER SECTION 68 OF THE ACT. 19. ON APPEAL THE LEARNED CIT(A) WHILE REJECTING T HE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE IN SUPPORT OF THEIR SUBMISSIONS THAT SHRI NIMESH NAYA K INTRODUCED THE SUM OF RS.10 85 000 OUT OF CASH WITHDRAWALS/LOANS FROM HIS ACCOUNT WITH ICICI BANK WHILE SHRI MAZHAR KAPADIA HAD INTRODUCED A SUM OF RS.9 50 000 FROM OUT OF A LOAN TAKEN FROM THE ICICI BANK AS ALSO FROM HIS OW N PERSONAL SOURCES- RS.60 000 CONCLUDED AS UNDER: 14. I HAVE CAREFULLY CONSIDERED THE ACTION TAKEN B Y THE AO AS ALSO THE SUBMISSIONS' OF THE AR ALONG WITH COPIES OF BANK A CCOUNTS OF THE TWO PARTNERS WHICH HAVE BEEN FURNISHED BEFORE ME. IT H AS BEEN CLEARLY RECORDED BY THE AO IN PARA 9.6 OF THE ASSESSMENT OR DER THAT INSPITE OF BEING AFFORDED SEVERAL OPPORTUNITIES THE ASSESSEE HAD NOT OFFERED ANY SATISFACTORY REPLY OR PROVIDED EVIDENCES ETC REGAR DING THE INTRODUCTION OF SUCH CAPITAL. IN APPELLATE PROCEEDINGS IT HAS HOT BEEN EXPLAINED BY THE AR ITA N O.3239/AHD/08 16 AS TO WHY THIS WAS SO. IN FACT IN THE WRITTEN SUBM ISSIONS SUBMITTED IT HAS BEEN ACCEPTED THAT THE ADDITION CAME TO BE MADE BEC AUSE OF THE NON- FILING OF CONFIRMATION OR ANY OTHER PROOF BY THE PA RTNERS. SUCH FAILURE OF THE PARTNERS IS UNPARDONABLE. IT WAS NOT A LOAN OR ANY OTHER CASH CREDIT FOR WHICH THE CREDITOR OR THE DEPOSITOR WAS EITHER NOT TRACEABLE OR WAS NOT CO- OPERATING IN PROVIDING THE REQUISITE CONFIRMATIONS AND OTHER DETAILS. IT WAS ONLY INTRODUCTION OF CAPITAL BY THE PARTNERS INTO T HEIR FIRM. EVEN THEN THE PARTNERS DID NOT THINK IT IMPORTANT ENOUGH TO COMPL Y WITH THE AO'S REQUIREMENTS. THEREFORE THE EVIDENCE NOW FURNISHED CANNOT BE ADMITTED IN TERMS OF RULE 46A OF THE IT RULES SINCE THE ASS ESSEE'S CASE IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDED UNDER THE SAID RULE. THE ADDITION OF THE SUM OF RS.20 95 000 WILL THEREFORE STAND CONFIRMED. 20. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). IN THEIR WRITTEN S UBMISSIONS THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) FAILED TO AP PRECIATE THAT THERE CASE IS COVERED BY SUB-CLAUSE (B) OF RULE 46A OF IT RULES AND THEREFORE THE LEARNED CIT(A) OUGHT TO HAVE ADMITTED THE EVIDENCE. RELYING UPON DECISIONS IN KESHAV MILLS CO. LTD V. C IT (1965) 56 ITR 365 (S.C.) INCOME TAX OFFICER V. NAHAR SINGHA SADHU SINGH (2002) 253 ITR 471(P&H) AND CIT VS. PANKAJ DYESTUFF INDUST RIES( GUJ.) THE ASSESSEE CONTENDED THAT THE LD. CIT(A) WAS NOT JUS TIFIED IN REJECTING THE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE. T HE LD. AR ADDED THAT AT LEAST THE LD. CIT(A) SHOULD HAVE ADMITTED A DDITIONAL EVIDENCE IN TERMS OF RULE 46A(4) OF THE IT RULES 1962. THE L D. DR ON THE OTHER HAND SUPPORTED THE FINDINGS OF THE LD. CIT(A ) 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE REPELLED ALL OPPORTUNITIES PROVIDED BY THE AO TO SUBSTANTIATE THEIR CLAIM THAT THE FUNDS HAD BEEN BROUGHT IN BY THE PARTNERS AND DID NOT EVEN C ARE TO REPLY TO THE SHOWCAUSE NOTICES ISSUED BY THE AO. CONSIDERING THESE CIRCUMSTANCES THE LD. CIT(A) REJECTED THE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE IN TERMS OF RULE 46A OF THE IT RULES 1962 AND UPHELD THE ADDITION. HERE WE MAY HAVE A LOOK AT THE RELEVANT PROVISIONS OF RULE 46A OF THE IT RULES 1962 WHICH READS AS UNDER : ITA N O.3239/AHD/08 17 (1) THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE COMMISSIONER (APPEALS) ANY EVIDENCE WHETHER ORAL OR DOCUMENTARY OTHER TH AN THE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE ASS ESSING OFFICER EXCEPT IN THE FOLLOWING CIRCUMSTANCES NAMELY:-- (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMI T EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED;OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE ASSESSING OFFICER; OR (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE ASSESSING OFFICER ANY EVIDENCE WHICH IS RELEVAN T TO ANY GROUND OF APPEAL; OR (D) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO A DDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE C OMMISSIONER (APPEALS) RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. (3)THE DEPUTY COMMISSIONER(APPEALS) OR AS THE CA SE MAY BE THE COMMISSIONER (APPEALS) SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE INCOME-TAX OFFICER HA S BEEN ALLOWED A REASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS-EXAMINE THE WITNESS PRODUCED BY THE APPELLANT OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUCTION OF ANY DOCUMENT OR THE EXAMI NATION OF ANY WITNESS TO ENABLE HIM TO DISPOSE OF THE APPEAL OR FOR ANY OTH ER SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETH ER ON HIS OWN MOTION OR ON THE REQUEST OF THE ASSESSING OFFICER) UNDER CLAUSE (A) OF SUB SECTION (1) OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER SECT ION 271..' 21.1 IT IS EVIDENT FROM THE AFORESAID PROVISION S THAT THE LD. CIT(A) CAN TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-R. (1)(B) & (C) OF RULE 46A OF THE IT RULES 1962 IF THE ASSESSEE WAS PREVENTED BY SUFF ICIENT CAUSE .IN THE CASE UNDER CONSIDERATION THE ASSESSEE DID NOT APPEAR TO HAVE ESTABLISHED ANY SUFFICIENT CAUSE AND THEREFORE THE LD. CIT(A) REJ ECTED THE REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE. THE LD. AR HAS NOW CLAIME D BEFORE US THAT THE FUNDS ITA N O.3239/AHD/08 18 WERE BROUGHT IN BY THE PARTNERS FROM WITHDRAWLS / BORROWINGS FROM THE RESPECTIVE BANK ACCOUNT OF THE PARTNERS WITH THE ICICI BANK AN D THE LD. CIT(A) COULD HAVE AT LEAST IN THE INTEREST OF JUSTICE ADMITTED THEIR AD DITIONAL EVIDENCE IN TERMS OF RULE 46A(4) OF THE IT RULES 1962. IN THE LIGHT OF THESE PROVISIONS CONTAINED IN RULE 46A(4) OF THE IT RULES 1962 AND CONSIDERING THE FAC TS AND CIRCUMSTANCES OF THE CASE WE FIND MERIT IN THE CONTENTIONS OF THE LE ARNED AR ON BEHALF OF THE ASSESSEE THAT THEREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE ISSUES RAISED IN GROUND NO. 4 IN THE APPEAL HIS FILE WITH THE DIRECTIONS TO FOLLOW THE MANDATE IN TERMS OF RULE 46A(4) OF THE IT RULES 1962 AS ALSO PRINCIPLES OF NATURAL JUSTICE A ND THEREAFTER DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFI CIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTIONS GROUND NO. 2 RAIS ED IN THE APPEAL IS DISPOSED OF AS INDICATED HEREINBEFORE. 22. GROUND NO.5 IN THIS APPEAL RELATES TO CONFI RMATION OF DISALLOWANCE OF RS.18 000/- U/S 40A(2)(B) OF THE ACT. THE AO NOTICE D ON PERUSAL OF THE INTEREST ACCOUNT OF THE ASSESSEE FIRM THAT IT PAID INTERES T TO SMT. ANITA J NAIK @ 24%PA WHILE THE PREVAILING MARKET RATE FOR THE INTEREST W AS AROUND 12%PA.SINCE THE ASSESSEE FIRM ITSELF PAID INTEREST AT THIS RATE TO OTHER NON-RELATED PARTIES WHILE THE AFORESAID PERSON WAS COVERED U/S 40A(2)(B) OF THE A CT THE AO ASKED THE ASSESSEE VIDE LETTER DATED 02-11-2007 TO SHOW CAUSE AS TO W HY THE EXCESS INTEREST PAID @ 12% TO SMT. ANITA J NAIK AMOUNTING TO RS.18 000/- M AY NOT BE DISALLOWED IN TERMS OF THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. SINCE THE ASSESSEE DID NOT FURNISH ANY REPLY THE AO DISALLOWED THE AMOUNT OF RS. 18 000/- IN TERMS OF PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 23. ON APPEAL SINCE THE ASSESSEE DID NOT FURNISH ANY EXPLANATION THE LEARNED CIT(A) UPHELD THE DISALLOWANCE 24. GROUND NO. 6 IN THIS APPEAL RELATES TO ADDIT ION OF RS.1 00 013/- IN RESPECT OF OCTROI CHARGES EXPENSES. THE AO NOTI CED THAT DURING THE YEAR THE ASSESSEE PURCHASED THE FOLLOWING ASSE TS APART FROM THE OTHER SMALL ASSETS: ITA N O.3239/AHD/08 19 NAME OF THE VENDOR PARTICULARS OF PURCHASE AMOUNT IN RS. HARISINGH & SONS (P) LTD. NEW DELHI COLOUR OFFSET PRINTING MACHINE (USED) 39 62 400/- M M ENTERPRISES THANE SECOND HAND CURING MACHINE WITH ACCESSORIES 99 840/- SINCE THE ASSESSEE PURCHASED SECOND HAND MACHINES F ROM THE ABOVE VENDORS WHILE THE DOCUMENTS AVAILABLE ON RECO RDS REVEALED THAT THE ASSESSEE DID NOT CAPITALIZE TRANSPORTATION CHARGES OCTROI PAID UNLOADING CHARGES INSTALLATION CHARGES AND THE ELECTRIFICATION CHARGES TO MAKE THESE MACHINES OPERATIONAL THE AO ASKED THE ASSESSEE VIDE LETTER DATED 02-11-2007 AND SUBSEQUEN T SHOWCAUSE NOTICE AS TO WHY SUCH EXPENSES BE NOT CAPITALIZED . THE ASSESSEE WAS ALSO INTIMATED ABOUT THE REASONABLE ESTIMATE OF RS.15 000/- TOWARDS TRANSPORTATION AS ONE OF THE MACHINE HAS B EEN TRANSPORTED FROM NEW DELHI TO SURAT AND THE OTHER MACHINE FROM THANE . SIMILARLY THE OCTROI PAID ON THE SAME WAS PROPOSED TO BE TAKEN @ 4% OF THE INVOICE VALUE WHICH WORKED OUT TO RS.1 62 490/- BESIDES RS.2 000/- TOWARDS UNLOADING CHARGES RS.20 000/- O N ACCOUNT OF INSTALLATION CHARGES OF BOTH MACHINES AND FURTHER R S.5 000/- TOWARDS ELECTRIFICATION CHARGES SO AS TO MAKE THESE MACHINE S OPERATIONAL. MOREOVER THE AO NOTICED THAT AN AMOUNT OF RS.9 699 /- WAS DEBITED TOWARDS TRANSIT INSURANCE. IN THE ABSENCE OF ANY RE PLY THE AO CAPITALIZED THESE EXPENSES OF RS. 2 04 490+RS.9 699 /- AND ACCORDINGLY DISALLOWED A SUM OF RS.1 71 321/- AFTE R ALLOWING DEPRECIATION 25. ON APPEAL THE LEARNED CIT(A) ADJUDICATED TH E ISSUE AS UNDER:- SUBMISSIONS OF THE ASSESSEE: 21. IT HAS BEEN SUBMITTED BY THE AR THAT ALL SUCH C HARGES HAD BEEN BORNE BY THE SUPPLIERS OF THE MACHINES AND THE COS T OF MACHINERIES WAS ITA N O.3239/AHD/08 20 INCLUSIVE OF ALL SUCH EXPENDITURE INCIDENTAL TO THE ACQUISITION AND INSTALLATION OF THE MACHINERIES. THE ASSESSEE HAD I NCURRED OCTROI CHARGES OF RS.1 00 013 WHICH WAS NOT CAPITALIZED. IT HAS BE EN REQUESTED BY THE A.R THAT THE OCTROI CHARGES MAY BE ALLOWED SINCE TH E MACHINERIES WERE OLD AND PUT TO USE IMMEDIATELY. DECISION 22. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . I AM OF THE VIEW THAT THE ESTIMATE OF THE TRANSPORT AND INSTALLATION EXPE NSES ETC. MADE BY THE A.O TOTALLING RS.2 04 490 WAS SIMPLY WITHOUT ANY BA SIS. THE ASSESSEE HAD NOT CLAIMED ANY SUCH EXPENSES EVEN THOUGH IT WOULD HAVE BEEN ADVANTAGEOUS TO DO SO SINCE IT COULD EITHER BE ALL OWED AS REVENUE EXPENDITURE OR DEPRECIATION ALLOWED AFTER CAPITALIZ ATION EITHER WAY THE ASSESSEE WOULD HAVE BENEFITED. ON THE OTHER HAND THE A.O HAD NO EVIDENCE TO SHOW THAT SUCH EXPENSES HAD INDEED BEEN INCURRED. THEREFORE THERE WAS NO RE ASON OR BASIS TO ESTIMATE SUCH EXPENSES. HOWEVER THERE HAS BEEN A P OSITIVE FALL OUT FROM THE ACTION OF THE A.O IN THE SENSE THAT THE A.R HA S CONCEDED THAT THE OCTROI PAYMENT OF RS.1 00 013 HAD NOT BEEN CAPITALI ZED. THE AR'S REQUEST THAT SUCH EXPENDITURE BE ALLOWED AS A REVENUE EXPEN DITURE ON THE GROUND THAT THE MACHINES WERE OLD AND PUT TO USE ALMOST I MMEDIATELY IS SIMPLY NOT ACCEPTABLE. THE A.O IS THEREFORE DIRECTED TO DE LETE THE ADDITION OF RS.1 71 321 BUT AT THE SAME TIME MAKE THE ADDITION OF RS.1 00 013/- BEING OCTROI CHARGES WHICH IS TO BE CAPITALIZED AND DEPRECIATION ALLOWED THEREON. 26. GROUND NO.7 IN THIS APPEAL RELATES TO AN ADD ITION OF RS.76 119/- U/S 40(A)(IA) OF THE ACT. THE AO NOTICE D ON PERUSAL OF THE LEDGER ACCOUNTS OF VARIOUS CREDITORS TO WHOM TH E ASSESSEE HAD PAID INTEREST THAT THE FIRM DID NOT DEDUCT TDS FRO M THE FOLLOWING AMOUNTS AS PER THE APPLICABLE PROVISIONS OF THE ACT .: 1. ANITA J NAIK RS.36780 2. CHANDJI R MITTAL RS.10658 3. RANIDEVI BOTHRA RS. 6000 4. MADHU V GEORGE RS.10681 5. SUMAN BOTHRA RS.12000 ------------- RS.76119 DESPITE OPPORTUNITY VIDE LETTER DATED 02-11-2007 THE ASSESSEE DID NOT FURNISH ANY REPLY NOR SUBMITTED ANY DETAILS. A CCORDINGLY THE AO ITA N O.3239/AHD/08 21 DISALLOWED THE AFORESAID AMOUNT INVOKING THE PROVI SIONS OF SEC. 40(I)(IA) OF THE ACT. 27. ON APPEAL THE LEARNED CIT(A) UPHELD THE DISA LLOWANCE THEREBEING NO SUBMISSION BY THE AR . 28. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LEARNED CIT(A) ON THE ISSUES RAISED IN GROUND NOS. 5 TO 7 IN THE APPEAL. SINCE THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT MAKE EVEN A WHISPER BEFORE US ON THE ISSUES R AISED IN THESE GROUND NOS. 5 TO 7 OF THE APPEAL NOR ANY PLEA HAS B EEN MADE EVEN IN THE WRITTEN SUBMISSIONS FILED NOR WAS ANY EXPLAN ATION GIVEN BEFORE THE LD. CIT(A) WE HAVE NO BASIS TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NOS. 5 TO 7 IN THE APPEAL ARE DISMISSED. 29. GROUND NOS. 8 & 9 IN THE APPEAL BEING GENERAL IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THESE GROUNDS DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE THE REFORE DISMISSED 30. IN THE RESULT APPEAL IS PARTLY ALLOWED BUT F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 4-2-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 4-2-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S XPRESS PRINTERS SHED NO. 25 NEW FUNCTIONAL ESTATE ROAD NO.6 UDHNA SURAT 2. ITO WARD-2(1) SURAT ITA N O.3239/AHD/08 22 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. DR ITAT BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITA N O.3239/AHD/08 23