Shri Shailesh L.Bafna, Surat v. The Income tax Officer,Ward-2(1),, Surat

ITA 3258/AHD/2008 | 2005-2006
Pronouncement Date: 08-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 325820514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 3258/AHD/2008
Duration Of Justice 2 year(s) 9 month(s) 15 day(s)
Appellant Shri Shailesh L.Bafna, Surat
Respondent The Income tax Officer,Ward-2(1),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 08-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 08-07-2011
Date Of Final Hearing 07-06-2011
Next Hearing Date 07-06-2011
Assessment Year 2005-2006
Appeal Filed On 23-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI G.D. AGARWAL HONBLE VICE-PRESIDENT (AZ) AND SHRI D.K. TYAGI HONBLE JUDICIAL MEMBER ITA NO.3258 & 3279/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING: 7.6.11 DRAFTED:28.6.11 SHRI SHAILESH L. BAFNA PROP. OF VIMAL STEEL TRADERS A-4 CHANDANVAN SOCIETY NR. SOUTH ZONE OFFICE UDHNA SURAT PAN NO.ABPPB3916D INCOME TAX OFFICER WARD-2(1) ROOM NO.116 1 ST FLOOR AAYKAR BHAVAN MAJURA GATE SURAT V/S . V/S . INCOME TAX OFFICER WARD-2(1) ROOM NO.116 1 ST FLOOR AAYKAR BHAVAN MAJURA GATE SURAT SHRI SAHILESH LAXMILAL BAFNA PROP. M/S. VIMAL STEEL TRADERS A-4 CHANDANVAN SOCIETY NR. SOUTH ZONE OFFICE UDHNA SURAT (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI J.P. SHAH SR-AR REVENUE BY:- SHRI PRAKASH DUBEY SR-DR O R D E R PER D.K. TYAGI JUDICIAL MEMBER:- THESE ARE CROSS-APPEALS FILED BY ASSESSEE AND REVE NUE AGAINST THE COMMON ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS )-II SURAT IN APPEAL NO.CAS/II/142/07-08 FOR ASSESSMENT YEAR 2005-06. FIRST WE WILL DEAL WITH ASSESSEES APPEAL IN ITA NO .3258/AHD/2008. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 2 2. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN TRADING OF IRON BARS CHANNELS CEMENT ETC. IN THE NAME & STYLE OF MS/ VIMAL STEEL TRADERS. THE FIRST GROUND TAKEN BY THE ASSESSEE IS AS UNDER:- 1. THE C.I.T.(APPEALS) ERRED IN UPHOLDING THE DISA LLOWANCE OF RS.17 391/- OUT OF THE EXPENSES CLAIMED FOR TELEPHO NE VEHICLE AND/DEPRECIATION ON MOTOR CAR. 3. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO BIFURCATE SUCH EXPENSES BETWEEN THOSE W HICH WERE INCURRED FOR THE PURPOSE OF BUSINESS AND THOSE WHICH WERE NOT I. E. THE ITEMS WHICH HAD A PERSONAL ELEMENT. THE ASSESSING OFFICER ALSO ISSUED A SHOW-CAUSE NOTICE ASKING THE ASSESSEE TO EXPLAIN WHY 20% OF SUCH EXPE NSES SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT HE WAS SO E NGROSSED IN HIS BUSINESS THAT HE HAD NO TIME FOR HIS PERSONAL LIFE PERSONAL TRAVEL OR THE USE OF TELEPHONE FOR PERSONAL PURPOSES. THE ASSESSEE ALSO SUBMITTED THAT IT WAS NOT PRACTICABLE TO MAINTAIN A LOG BOOK REGARDING THE US E OF THE VEHICLES AND TELEPHONES. RELIANCE WAS PLACED ON THE CASE OF AGARWAL TRADING CO. V. ITO (2007) 111 TTJ 589 (DEL). THE ASSESSING OFFICER REJ ECTED THE ASSESSEES SUBMISSIONS AND OBSERVED THAT THE FACTS OF THE CASE OF AGARWAL TRADING CO. (SUPRA) WERE NOT THE SAME AS THAT OF THE ASSESSEE. ON HIS PART ASSESSING OFFICER PLACED RELIANCE ON SEVERAL CASE LAWS AND DI SALLOWED 20% OF THE VEHICLE AND TELEPHONE EXPENSES AND MADE THE ADDITIO N OF RS.17 391/-. 4. BEFORE LD. CIT(APPEALS) IT WAS SUBMITTED THAT TH E EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAD TO DEAL WITH PARTIES IN BIHAR JHARKHAND PUNJA B AND OTHER FAR AWAY PLACES AND SAME WAS EXPLAINED BEFORE THE ASSESSING OFFICER . THE EXPENSES INCURRED ON TELEPHONE WERE THEREFORE FULLY JUSTIFIED. AS REG ARD TO VEHICLE EXPENSES IT WAS CONTENDED THAT THE ASSESSEES RESIDENCE WAS LOC ATED WITHIN WALKING DISTANCE FROM HIS OFFICE AND THEREFORE HE DID NOT H AVE TO USE ANY VEHICLE FOR GOING TO OFFICE. IN THE ABSENCE OF LOG BOOK THE EX PENSES CLAIMED SHOULD HAVE BEEN EVALUATED AND JUDGED AFTER TAKING INTO CONSIDE RATION THE NATURE OF ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 3 BUSINESS. THE PLACE FROM WHERE THE BUSINESS WAS CON DUCTED AND THE VOLUME OF BUSINESS IT WAS THEREFORE REQUESTED THAT THE DIS ALLOWANCE/ADDITION MADE BY AO BE DELETED. HOWEVER LD. CIT(APPEALS) DID NOT FI ND THIS EXPLANATION ACCEPTABLE AND CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER. 5. BEFORE US ALSO THE SAME SUBMISSIONS WERE MADE AS MADE BEFORE LOWER AUTHORITIES ON BEHALF OF THE ASSESSEE WHILE ON THE OTHER HAND LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE ARE OF THE CONSIDERED OPINION THAT PERSONAL USE OF ASSETS LIKE VEHICLE AND TELEPHONE CANNOT BE RULED OUT ESPECIALLY WHEN NO RECORD OF TH EIR USAGE HAVE BEEN MAINTAINED BY THE ASSESSEE. WE HOWEVER FEEL IT RE ASONABLE TO RESTRICT THIS DISALLOWANCE TO 10% OF THE EXPENDITURE CLAIMED BY A SSESSEE OF TELEPHONE VEHICLE AND DEPRECIATION ON MOTOR CARS. THE ASSESSI NG OFFICER IS DIRECTED TO RECALCULATE THE DISALLOWANCE. THIS GROUND OF ASSESS EES APPEAL IS PARTLY ALLOWED. 7. THE SECOND GROUND TAKEN BY ASSESSEE READS AS UND ER:- 2.THE C.I.T.(APPEALS) ERRED IN LAW AND IN FACT IN UPHOLDING THE ADDITION OF RS.1 68 000/- ON ACCOUNT OF LOW HOUSEHOLD WITHDR AWALS. 8. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD SHOWN TOTAL WITHDRAWAL FOR HOUSEH OLD EXPENSES AT RS.1.32 LAKH. THE ASSESSEES FAMILY COMPRISES OF NINE MEMBE RS. THE AO PROVIDED AN OPPORTUNITY TO THE ASSESSEE TO FURNISH THE DETAILS OF HOUSEHOLD EXPENSES AND ALSO TO SHOW-CAUSE AS TO WHY SUCH EXPENSES SHOULD N OT BE ESTIMATED AT RS.3.24 LAKH FOR THE ENTIRE YEAR @ 3000/- PER MONTH PER MEMBER OF THE FAMILY. THE ASSESSEE REPLIED THAT HE AND HIS FAMILY MEMBER S WERE TERAPANTHI JAINS AND AS PER THEIR RELIGIOUS TENETS THEY LED A VERY SIMPLE AND PIOUS LIFE. NO EXPENSES WERE INCURRED ON EDUCATION OF ANY MEMBER THE ONLY MINOR BEING 2 YEARS OF AGE NO RENT WAS PAYABLE AS THE RESIDENTIA L PREMISES WAS OWNED BY ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 4 THE ASSESSEES WIFE. NO MAINTENANCE CHARGES WERE PA ID FOR THE PREMISES SINCE THE SAME HAD BEEN COLLECTED AT THE TIME OF AL LOTMENT OF THE PROPERTY. THE AO REJECTED THE ASSESSEES SUBMISSION AND OBSER VED THAT ASSESSEE HAD FAILED TO FURNISH DETAILS OF EXPENSES UNDER DIFFERE NT HEADS WHICH HAD BEEN LISTED OUT IN THE SHOW-CAUSE NOTICE AND HAD ONLY MA DE VERY GENERALIZED SUBMISSION. THE ASSESSEE LIVED IN A SOCIETY IN A HU GE BUNGALOW ON WHICH SUBSTANTIAL SUMS WOULD HAVE BEEN EXPENDED ONLY ON R EPAIRS ETC. TAKING ALL SUCH FACTS INTO CONSIDERATION THE AO ESTIMATED THE ASSESSEES ANNUAL HOUSEHOLD EXPENSES AT RS.3 LAKH @ RS.3 000/- PER MO NTH PER ADULT MEMBER AND RS.2 000/- PER MONTH FOR EACH MINOR MEMBER. AFT ER SETTING OFF THE WITHDRAWALS OF RS.1.32 LAKH SHOWN BY THE ASSESSEE A O ADDED THE BALANCE SUM OF RS.1.68 LAKH TO THE ASSESSEES TOTAL INCOME. 9. BEFORE LD. CIT(APPEALS) IT WAS CLAIMED ON BEHALF OF ASSESSEE THAT ASSESSING OFFICER HAD AVOIDED REPRODUCING THE RELEV ANT PORTION OF ASSESSEES SUBMISSION. THE ASSESSEE LIVES IN UDHNA WHICH IS NO T A POSH AREA. THE AO FAILED TO BRING ANY MATERIAL ON RECORD TO SUPPORT H IS CLAIM THAT THE ASSESSEE AND HIS FAMILY LED AN AFFLUENT LIFE. THE ASSESSEE A LSO EXPLAINED THE TERAPANTHI JAINISM TO ARGUE THAT THE ASSESSEE AND HIS FAMILY LIVED A VERY SIMPLE LIFE AND THE WITHDRAWAL OF RS.1.32 LAKH WAS SUFFICIENT TO ME ET ALL THE EXPENSES OF THE FAMILY. LD. CIT(APPEALS) HOWEVER CONFIRMED THE AC TION OF ASSESSING OFFICER. 10. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SAME SUBMISSIONS AS MADE BEFORE LOWER AUTHORITIES. 11. LD. DR HAS RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT LD. CIT(APPEALS) WHILE CONFIRMING THE ACTION OF ASSESSI NG OFFICER HAS TAKEN INTO CONSIDERATION THE SUBMISSION MADE BY THE ASSESSEE B EFORE HIM. HE HAS ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 5 PASSED A WELL REASON SPEAKING ORDER ON THIS ISSUE W ITH WHICH WE ARE IN TOTAL AGREEMENT. THE RELEVANT PORTION OF HIS ORDER IS REP RODUCED AS UNDER:- 10. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS . THE ASSESSEE HAD SHOWN A TOTAL WITHDRAWAL FOR THE YEAR OF RS.1 32 00 0 WHICH MEANT AN AVERAGE WITHDRAWAL OF RS.11 000 PER MONTH FOR A FAM ILY OF 9 MEMBERS. IT IS ABSOLUTELY CLEAR THAT RS.11 000 WOULD HAVE BE EN GROSSLY INSUFFICIENT TO MEET EVEN THE BASIC NECESSITIES OF ANY MIDDLE CL ASS FAMILY WITH 9 MEMBERS. EVEN IF THE ASSESSEE MAY HAVE BEEN LIVING IN A MODEST LOCALITY AND LEADING A SIMPLE LIFE; AND NO EXPENSE S WERE INCURRED ON EITHER EDUCATION OR ON PAYING MAINTENANCE CHARGES T O THE SOCIETY YET THE ASSESSEE WOULD NECESSARILY HAVE HAD TO INCUR EX PENSES ON ACCOUNT OF MUNICIPAL TAXES ON THE RESIDENTIAL PROPERTY ON SERVANTS ON GAS WATER & ELECTRICITY REPAIRS TO THE BUNGALOW DAILY PROVISIONS MEDICAL TREATMENT CLOTHING LAUNDRY NEWSPAPERS ON TRANSP ORT AND MOST IMPORTANTLY ON SOCIAL AND RELIGIOUS OCCASIONS WHIC H ARE QUITE NUMEROUS ESPECIALLY IN THE COMMUNITY TO WHICH THE ASSESSEE BELONGS. THEREFORE TO WHICHEVER COMMUNITY ANY PERSON MAY BE LONG OR WHICHEVER RELIGIOUS TENET HE MAY FOLLOW HE NECESSA RILY HAS TO INCUR THE AFORESAID EXPENSES FOR HIS VERY SURVIVAL AND ALSO T HE SURVIVAL OF HIS FAMILY MEMBERS. THEREFORE I AM OF THE VIEW THAT TH E ESTIMATE OF RS.3 20 000 AS THE ANNUAL HOUSEHOLD EXPENSES OF THE ASSESSEE AND HIS FAMILY WAS VERY REASONABLE AND WAS IN FACT ON THE LOWER SIDE. CONSEQUENTLY THE ADDITION OF THE SUM OF RS.1 68 00 0 IS SUSTAINED. IN VIEW OF THE ABOVE ORDER PASSED BY LD. CIT(APPEAL S) IS HEREBY UPHELD. THIS GROUND OF ASSESSEES APPEAL IS DISMISSED. 13. GROUND NO.3 AND 4 TAKEN BY ASSESSEE READ AS UND ER:- 3. THE C.I.T.(APPEALS) ERRED IN UPHOLDING THE ADDI TION OF RS.40 896/- AS UNDERVALUATION OF STOCK OF CEMENT SHEETS. 4. THE C.I.T.(APPEALS) FURTHER ERRED IN LAW AND ON FACT IN UPHOLDING AN ADDITION OF RS.1 23 341/- AS UNDER-VALUATION OF STO CK OF M.S. ANGLE CHANNELS. 14. BOTH THESE ADDITIONS RELATE TO UNDER-VALUATION OF STOCK. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT THE ASSESSEE DEALT WITH TWO TYPES OF FIBER CEMENT CORRUGATED SHE ETS; ONE WAS PURCHASED FOR RS.180.7 AND THE OTHER FOR RS.225.34 PER SQ.FT. HOW EVER IN THE CLOSING STOCK THE ASSESSEE VALUED ALL THE 902 SHEETS @ RS.180 WHI CH ACCORDING TO THE AO ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 6 WAS NOT CORRECT. THE AO ISSUED A SHOW-CAUSE NOTICE ASKING THE ASSESSEE TO EXPLAIN WHY SUCH SHEETS SHOULD NOT VALUED AT RS.239 .34 PER SQ.FT AND WHY THE DIFFERENCE OF RS.14 896/- SHOULD NOT BE ADDED BACK ON ACCOUNT OF UNDER- VALUATION OF CLOSING STOCK. THE ASSESSEE FURNISHED A DETAILED REPLY WHICH HAS BEEN REPRODUCED BY AO AT PARA-8.1 OF HIS ASSESSMENT ORDER. THE ASSESSEE SUBMITTED THAT SHEETS BEING FRAGILE ARE SUBJECTED T O FREQUENT DAMAGES WHICH REDUCES THE VALUE. THE SHEETS ARE PILLED UP WITH 50 -60 SHEETS IN EACH PILE AND THEREFORE IT IS NOT POSSIBLE TO MAINTAIN THE STOCK ACCORDING TO THE FIFO METHOD. OFTEN THE SHEETS ARE DAMAGED WHILE BEING TRANSPORTE D FROM THE SUPPLIER. IT WAS FOR SUCH REASONS THAT THE SHEETS WERE VALUED AT RS.180/-. THE AO REJECTED THE ASSESSEES SUBMISSION AND RECORDED THE DETAILED REASONS FOR THIS REJECTION. HE NOTED THAT STOCK REGISTER DID NOT CON TAIN ANY ENTRY REGARDING DAMAGED GOODS. IF THE GOODS WERE SO FRAGILE THEN IT WAS NOT PRUDENT TO KEEP SUCH A HUGE STOCK OF 902 SHEETS ESPECIALLY WHEN THE AVERAGE SALE EACH FORTNIGHT WAS OF 89 SHEETS. MOREOVER THE ASSESSEE COULD NOT HAVE CHANGED THE VALUATION OF FRESH ITEMS WITHOUT MAKING ENTRIES AS ALSO MAKING SEPARATE INVENTORY OF THE DAMAGED GOODS. BASED ON SUCH REASO NS AO PROCEEDED TO MAKE THE ADDITION OF RS.40 896/- TO ASSESSEES INCO ME. 15. WITH REGARD TO UNDER-VALUATION OF M.S. ANGLE CH ANNELS THE ASSESSEE HAD SHOWN THE TOTAL CLOSING STOCK OF SUCH ITEM AT 3 7 151 KG. VALUING THE SAME @ RS.21.68 PER KG. AND THE TOTAL VALUE AT RS.8 05 4 33/-. THE AO OBSERVED THAT THE ASSESSEE HAD UNDERVALUED SUCH ITEM IN THE CLOSING STOCK SINCE THEY WERE PURCHASED AT RS.25/- PER KG. THE ASSESSEE SUBM ITTED THAT BECAUSE OF HEAVY INDUSTRIALIZATION IN AND AROUND SACHIN AND PA NDESARA THE IRON BARS WERE SUBJECTED TO HEAVY AND RAPID CORROSION ESPECI ALLY SINCE SUCH ITEMS WERE DUMPED ON OPEN GROUND. SUCH CORROSION LEADS TO REDU CTION IN WEIGHT. RELYING ON SOME CASE LAWS THE ASSESSEE ARGUED THAT IT WAS F UTILE TO MAKE ADDITION TO THE CLOSING STOCK SINCE IT WOULD REDUCE THE TAXABLE INCOME OF THE NEXT YEAR AS THE SAME WOULD HAVE TO BE CARRIED FORWARD NEXT YEAR . THE AO HOWEVER REJECTED THE ASSESSEES SUBMISSION. HE NOTED THAT A SSESSEE HAD NOT SIGNIFIED ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 7 OR NOTED THE DAMAGED AND CORRODED STOCK DETAILS. NO SEPARATE RECORD HAD BEEN MAINTAINED. DURING THE YEAR THE ASSESSEE HAD S OLD A TOTAL OF 533025 KG. OF M.S. ANGLE CHANNELS WHICH MEANT THAT THE ASSESSE E NEEDED TO KEEP A ROTATING STOCK OF 22210 KG. EVERY FORTNIGHT. THEREF ORE THE ASSESSEES CLAIM THAT HE HAD VERY OLD STOCK LYING WITH HIM COULD NOT BE F ACTUALLY CORRECT UNLESS IT WAS BACKED UP BY DOCUMENTARY EVIDENCE. THE AO THUS WORKED OUT THE UNDER- VALUATION OF CLOSING STOCK OF M.S. ANGLE CHANNELS A T RS.1 23 341/- WHICH WAS ADDED TO THE ASSESSEES TOTAL INCOME. 16. BEFORE LD. CIT(APPEALS) IT WAS CONTENDED THAT A SSESSING OFFICER HAD CAPRICIOUSLY MADE THE ADDITION BY INSISTING THAT AS SESSEE SHOULD HAVE FOLLOWED THE FIFO METHOD HOWEVER BECAUSE OF THE NAT URE OF BUSINESS ASSESSEE FOLLOWED LIFO SYSTEM IN SUPPORT OF WHICH N ECESSARY EVIDENCE HAD BEEN FURNISHED. INSTEAD OF SUBSTANTIATING HIS VIEW WITH REQUISITE EVIDENCE THE AO HAD TRIED TO ADVICE THE ASSESSEE ON THE WAYS OF HANDLING THE MATERIALS SO AS TO PREVENT LOSSES. THE ASSESSEE HAD FURNISHED DE TAILED EXPLANATION REGARDING HOW THE MATERIALS I.E. THE CEMENT SHEETS AND THE M.S. ANGLE SHEETS WERE DAMAGED IN COURSE OF TRANSIT AS WELL AS DURING THE PERIOD OF STORAGE. THE BUSINESS OF THE ASSESSEE IS MOSTLY ON TRUCK LOAD BA SIS AND GIVEN THE NATURE OF THE BUSINESS THE ASSESSEE HAD TO MAINTAIN SUBSTANT IAL INVENTORY TO ENABLE HIM TO GRAB BUSINESS OPPORTUNITIES INVOLVING BULK Q UANTITIES. IT WAS FOR THIS REASONS THAT THE ASSESSEE HAD TO MAINTAIN SUBSTANTI AL STOCK OF SUCH ITEMS AND ASSESSEE HAD MAINTAINED SUBSTANTIAL STOCK OF SUCH I TEMS. THE ASSESSEE HAD MAINTAINED DAY-TO-DAY STOCK WITH COMPLETE ENTRIES O F INWARD AND OUTWARD MOVEMENTS. THE AO HAD NOT POINTED OUT ANY ERROR OR OMISSION IN SUCH RECORDS. EVEN THOUGH THE ASSESSEE HAD FURNISHED DET AILED EXPLANATION AND REQUISITE EVIDENCES YET THE AO HAD REJECTED THE SA ME AND HAD PROPOUNDED HIS OWN THEORIES PERTAINING TO MAINTENANCE AND VALU ATION OF STOCK WITHOUT TAKING INTO CONSIDERATION THE NATURE OF ASSESSEES BUSINESS AND ITS REQUIREMENTS AND PRACTICES. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 8 17. AFTER TAKING INTO CONSIDERATION THIS SUBMISSION OF THE ASSESSEE LD. CIT(APPEALS) CONFIRMED THE ACTION OF AO BY OBSERVIN G AS UNDER:- 14. WITH REFERENCE TO THE UNDERVALUATION OF THE CL OSING STOCK OF CEMENT SHEETS AND M.S. ANGLE CHANNELS I FIND THAT THE ARS HAVE NOT SUCCEEDED IN REBUTTING THE DETAILED AS WELL AS THE VERY SPECIFIC FINDINGS AND OBSERVATIONS OF THE AO. THE BASIC CONTENTION OF THE ARS IS THAT THE AO HAD REJECTED ALL THE SUBMISSIONS OF THE ASSESSEE WITHOUT ANY BASIS AND WITHOUT HAVING ANY KNOWLEDGE REGARDING THE NATU RE AS ALSO THE REQUIREMENTS OF THE ASSESSEES BUSINESS. APART FROM REPEATING AND REITERATING THE SUBMISSIONS MADE DURING THE ASSESSM ENT PROCEEDINGS THE ARS HAVE NOT MADE ANY NEW POINT OR SUBMISSION ESPECIALLY AFTER THE AO HAD DEALT IN CONSIDERABLE DETAIL AND HAD REJ ECTED ALL THE ARGUMENT OF THE ASSESSEE IN ASSESSMENT PROCEEDINGS WHICH HE HAS REPRODUCED IN THE BODY OF THE ASSESSMENT ORDER. THE EXPLANATION REGARDING THE LOWER VALUATION ADOPTED FOR CEMENT SH EETS BECAUSE OF DAMAGE IN TRANSIT AS ALSO BECAUSE OF BEING PILED U P WHILE IN STORAGE WAS REJECTED BY THE AO WITH WELL REASONED AND LOGIC AL AUGMENTS (PARA- 8.2). I AM IN FULL AGREEMENT WITH THE VIEW TAKEN BY THE AO IN THIS REGARD. HE HAS BEEN ABLE TO SHOW HOW ASBESTOS FIBER BEING I NORGANIC AND INERT IS MORE DURABLE AND GAIN STRENGTH WITH AGE. CHEMICA LS ACID FUEL AND GAS DO NOT DAMAGE THE SHEETS. THEY ARE NON-COMPUSTI BLE AND THEIR THERMAL CONDUCTIVITY IS VERY LOW. IT HAS MORE TENSI LE STRENGTH WHICH IS OFTEN HIGHER THAN STEEL WIRES. THE ADDITION OF ASBE STOS FIBERS TO CEMENT IMPARTS GREATER FLEXURAL PROPERTIES JUST AS STEEL P ROVIDES TO RCC. MOST IMPORTANTLY THE ASSESSEE HAD MAINTAINED NO RECORD OF THE DAMAGED GOODS AND THEREFORE IT WAS NOT JUSTIFIED ON HIS P ART TO VALUE EVEN THE NEW SHEETS IN THE SAME MANNER AS THE OLD SHEETS. TH E ARS HAVE SIMPLY NO REPLY TO SUCH DETAILED AND SCIENTIFIC FIN DINGS OF THE AR. 14.1 AS REGARDS M.S. ANGLE CHANNELS ONCE AGAIN THE AO GAVE THE FINDING THAT THERE WAS NO EVIDENCE REGARDING THE RA PID CORROSION OF SUCH ITEM WITH THE RESULTANT LOSS IN WEIGHT. NO SEPARATE RECORD HAD BEEN MAINTAINED OF THE DAMAGED/CORRODED STOCK. MOREOVER THE ASSESSEES CLAIM THAT HE HAD VERY OLD STOCK WAS NOT BASED ON THE REALITIES OF THE BUSINESS. THE AO GAVE THE FINDING THAT SINCE THE AS SESSEE NEEDED TO MAINTAIN A STOCK OF 22 210 KGS EVERY FORTNIGHT THE RE WOULD BE NO SCOPE FOR ANY OLD STOCK TO REMAIN UNSOLD. THE ARS HAVE SI MPLY BEATEN AROUND THE BUSHES AND HAVE MADE VERY VAGUE AND GENERALIZED SUBMISSIONS EVEN QUESTIONING THE AO'S COMPETENCE IN EXAMINING T HE ASSESSEES BUSINESS PRACTICES. 14.2 GIVEN SUCH FACTS OF THE CASE I HAVE SIMPLY NO OTHER OPTION BUT TO CONFIRM THE ADDITIONS OF RS.40 896 AND OF RS.1 23 3 41 ON ACCOUNT OF UNDERVALUATION OF THE CLOSING STOCK OF CEMENT SHEET S AND M.S ANGLE CHANNELS RESPECTIVELY. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 9 18. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SAME SUBMISSION AS MADE BEFORE LOWER AUTHORITIES. LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES. 19. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT BOTH THE ADDITIONS FOR UNDERVALUATION OF STOCK OF CEMENT SHEETS AND M.S. ANGLE CHANNEL HAVE BEEN MADE BY ASSESSING OFFICER BY FOLL OWING FIFO METHOD OF VALUATION OF CLOSING STOCK WHILE THE ASSESSEE IS MA INTAINING THAT HE IS FOLLOWING THE LIFO METHOD OF VALUING THE CLOSING ST OCK. AT THE TIME OF HEARING BOTH THE PARTIES FAILED TO POINT OUT AS TO WHICH ME THOD WAS BEING FOLLOWED BY THE ASSESSEE DURING THE EARLIER YEARS. DURING THE Y EAR UNDER APPEAL ALSO THERE IS NO CLEAR FINDING OF THE ASSESSING OFFICER THAT A SSESSEE WAS FOLLOWING FIFO METHOD OF VALUING THE CLOSING STOCK. THE ISSUE CANN OT BE DECIDED UNLESS THE FULL DETAILS IN THIS REGARD ARE AVAILABLE ON RECORD . UNLESS DAY-TO-DAY STOCK REGISTER WITH COMPLETE ENTRIES OF INWARD AND OUTWAR D MOVEMENTS OF GOODS ARE AVAILABLE IT CANNOT BE DECIDED AS TO WHICH METHOD W AS BEING FOLLOWED BY THE ASSESSEE FOR VALUING THE CLOSING STOCK. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THE MATTER REQUIRES FRESH ADJUDICATION BY THE ASSESSING OFFICER TO FIRST ASCERTAIN AS WHAT IS THE CONSISTENT METHOD OF VALUING THE STOCK WHICH HAS BEEN FOLLOWED BY THE ASSESSEE AND THEN MAKE THE ADD ITION FOR UNDERVALUATION IF THE FACTS FOR THE YEAR UNDER THE APPEAL SO WARRA NT. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE THE RELEVANT DETAILS BEFORE ASS ESSING OFFICER SO THAT HE CAN EXAMINE THE CONSISTENT METHOD OF VALUING THE CL OSING STOCK OF THE ASSESSEE. FOR THIS PURPOSE THE MATTER IS RESTORED BACK TO HIS FILE. BOTH THE GROUNDS OF ASSESSEES APPEAL ARE ALLOWED FOR STATIS TICAL PURPOSES. 20. GROUND NO.5 TAKEN BY ASSESSEE READS AS UNDER:- 5. THE C.I.T.(APPEALS) GROSSLY ERRED IN LAW AND ON FACT IN CONFIRMING THE ADDITION OF RS.1 62 133/- AS SHORTAGE/DEFICIT CLAIM ED IN THE STOCK OF IRON AND STEEL. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 10 21. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD CLAIMED CERTAIN SHORTAGE THE DETA ILS OF WHICH HAVE BEEN REPRODUCED BY ASSESSING OFFICER IN PARA-10 OF HIS A SSESSMENT ORDER. WHEN ASKED TO EXPLAIN THE ASSESSEE FURNISHED THE DETAILE D EXPLANATION WHICH HAD BEEN REPRODUCED BY AO IN PARA 10.1 OF HIS ORDER WH EREIN IT WAS CLAIMED THAT SHORTAGE WERE INEVITABLE SINCE THE ASSESSEE PURCHAS ED THE MATERIALS IN BULK AND SOLD THEM IN RETAIL. THERE WAS ALWAYS A VARIATI ON IN THE WEIGHT. THE ASSESSEE HAD BEEN CLAIMING SHORTAGE FROM THE VERY B EGINNING OF HIS BUSINESS AND THE EXPLANATION FURNISHED OVER THE YEARS HAD BE EN ALWAYS ACCEPTED. THE AO HOWEVER REJECTED THE ASSESSEES CLAIM HOLDING T HAT EVEN THOUGH THERE MAY HAVE BEEN VARIATION IN THE WEIGHT BETWEEN SUPPL IERS AND THE ASSESSEE YET THE VARIATION COULD NOT ALWAYS RESULT IN SHORTA GES. THERE WOULD HAVE TO BE EXCESS WEIGHT ALSO SOMETIMES. THE ASSESSEE SUBMITTE D COPIES OF AUDIT REPORT OF SOME OTHER TRADERS SHOWING SHORTAGES. THE AO NOT ED THAT SOME OF THEM NEVER CLAIMED ANY SHORTAGE AND REFERRED TO THE CASE OF M/S MAHALAXMI STEELS. WITH REGARD TO A LETTER FURNISHED BY THE ASSESSEE F ROM ONE OF THE SUPPLIERS THE AO OBSERVED THAT IT APPEARED THAT SUPPLIER ENTERTAI NED THE CLAIM OF SHORTAGE IN WEIGHT ONLY WHEN THE SAME WAS LODGED IN THE PRESENC E OF THE DRIVER OF THE TRUCK IN WHICH MATERIAL WAS DISPATCHED. THIS SHOWED THAT THE INTENTION OF THE SUPPLIER WAS TO ENTERTAIN A CLAIM OF SHORTAGE ONLY ON ACCOUNT OF THEFT AND NOT ON ACCOUNT OF DIFFERENCE IN WEIGHTS. THE ASSESSEE H AD BEEN UNABLE TO PROVIDE SINGLE DOCUMENT FROM ANY SUPPLIER REGARDING SHORTAG ES IN TERMS OF WEIGHT. NO ENTRY WAS MADE IN THE STOCK REGISTER MAINTAINED BY THE ASSESSEE. IN THE STOCK REGISTER THE ASSESSEE RECORDED THE QUANTITY AS ACT UALLY RECEIVED AND AS PRINTED ON THE FACE OF THE BILL AND NOT AS SHOWN O N THE FACE OF THE WEIGHTMENT RECEIPTS. ON THE BASIS OF SUCH OBSERVATIONS THE AS SESSING OFFICER REJECTED THE CLAIM OF SHORTAGES AND ADDED THE SUM OF RS.1 62 133 /- TO THE ASSESSEES TOTAL INCOME. 22. BEFORE LD. CIT(APPEALS) IT WAS CLAIMED THAT SHO RTAGE WAS NORMAL IN ASSESSEES LINE OF BUSINESS AND SHORTAGES ARE ALWAY S IN THE KNOWLEDGE OF THE ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 11 SUPPLIERS WHO ARE HOWEVER RELUCTANT TO ENTERTAIN AN Y COMPLAINT FROM THE TRADER WHEN THE SHORTAGE A LESS THAN 100 KG. IT WAS CONTEN DED THAT AO HAD ACCEPTED THAT THERE WAS A VARIATION IN THE WEIGHT ALWAYS AT THE RECEIVERS END AND YET HE HAD MADE THE ADDITION. THE ASSESSING OFFICER HAD VERIFIED THE WEIGHTMENT CERTIFICATE WITH THE WEIGHT OF THE MATERIAL RECORDE D IN THE PURCHASE INVOICES. SHORTAGE OF WEIGHT WAS NOTICED BY THE AO IN ALL THE SAMPLES VERIFIED BY HIM. THE AUDIT REPORT OF SOME OF OTHER TRADERS WERE PROD UCED BEFORE THE ASSESSING OFFICER AND IN THE CASE OF SHRI DHANVANTRAI H DOSHI SHORTAGES SHOWN BY HIM HAD BEEN ACCEPTED BY THE ITO (OSD) RANGE-9 WITH R EGARD TO THE EXAMPLE OF M/S MAHALAXMI STEELS MENTIONED BY THE AO IT WAS SU BMITTED BY ASSESSEE THAT THERE WERE LOT OF RELEVANT FACTORS TO BE CONSI DERED AS TO THE IDENTITY OF THE SUPPLIER I.E. WEATHER A LOCAL TRADER OR A MANUFACTU RER AND IF THE SUPPLIER IS A TRADER WHETHER HE IS A BULK BUYER OR WHETHER HE BU YS AS PER SPECIFIC REQUIREMENTS ETC. IT WAS ARGUED VEHEMENTLY THAT THE AO HAD PROVIDED A VERY VAGUE AND HYPOTHETICAL EXPLANATION WHILE MAKING THE ADDITION AND SAME SHOULD BE DELETED. LD. CIT(APPEALS) HOWEVER CONFIRM ED THE ACTION OF AO. 23. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SAME SUBMISSION AS MADE BEFORE LOWER AUTHORITIES AND RELIED ON A CH ART TO SHOW THAT SUCH SHORTAGES WERE CLAIMED BY ASSESSEE IN EARLIER AND S UBSEQUENT YEARS ALSO AND SAME WERE ACCEPTED BY REVENUE. HE THEREFORE PRAYED THAT NO ADDITION WAS REQUIRED TO BE DONE BY THE ASSESSEE DURING THE YEAR UNDER APPEAL ALSO. 24. LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES . 25. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING CHART TO MAKE THE SUBMISSION THAT SHORTAGES WERE ALWAYS THERE AND ASSESSEE HAD B EEN CLAIMING THE SAME IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEAR AND THE SAME WERE ACCEPTED BY THE REVENUE AND THEREFORE NO ADDITION IS TO BE MADE IN THE YEAR UNDER APPEAL ALSO. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 12 F.Y. TOTAL PURCHASE BY WEIGHT TOTAL PURCHASE IN RS DEFICIT IN WEIGHT DEFICIT IN TERMS OF RUPEES 02-03 565292 9627667 1244 21185.30 03-04 957946 27696735 3304 74836.60 04-05 1330335.830 37363580 5480.22 153884.50 05-06 157827.43 41804729 711.76 18854.50 IN VIEW OF THE ABOVE SUBMISSION THE MATTER NEEDS FR ESH ADJUDICATION BY THE ASSESSING OFFICER AND FOR THIS PURPOSE THE MATTER IS RESTORES BACK TO HIS FILE WITH THE DIRECTION TO VERIFY THE SUBMISSIONS OF THE ASSESSEE AND THEN PASS A FRESH ORDER AS PER LAW. THIS GROUND OF ASSESSEES A PPEAL IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 26. THE ASSESSEE HAS TAKEN GROUND NO.6 WHICH READS AS UNDER:- 6. THE C.I.T. (APPEALS) ERRED IN LAW AND ON FACT I N CONFIRMING THE ADDITION OF RS.7 95 000/- AS UNEXPLAINED CASH CREDI TS. 27. ON EXAMINATION OF THE DETAILS OF THE CREDITORS FURNISHED BY ASSESSEE THE ASSESSING OFFICER OBSERVED THAT NO IDENTIFICATION I NCLUDING CONFIRMATION ETC. HAS BEEN FURNISHED IN RESPECT OF SHRI BABULAL KIRAN KUMAR SHAH M/S. KIRAN TEXTILES AND M/S. CERAMIC WORLD. THE ASSESSEES ATT ENTION WAS ALSO DRAWN TO THE PASSBOOK OF SHRI PYARECHAND RANGLAL SHAH HUF WH ERE A SUM OF RS.45 000/- WAS DEPOSITED IN CASH ON 21-08-2004 AND ON THE SAME DAY THE SAME SUM WAS ADVANCED TO M/S. VIMAL STEEL TRADERS. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME AND ALSO WHY THE CONFIRMA TION LETTERS AND OTHER EVIDENCES FROM THE THREE PARTIES HAD NOT BEEN FURNI SHED. 28. THE ASSESSEE SUBMITTED THAT THE SUM OF RS.45 00 0/- HAD BEEN DEPOSITED BY THE KARTA OF THE SAID HUF FROM OUT OF HIS AGRICULTURAL INCOME. THE EVIDENCE OF OWNERSHIP OF LAND CAPITAL ACCOUNT BALANCE-SHEET AND A COPY OF ACKNOWLEDGEMENT RETURN OF INCOME FILED HAD BEEN FURNISHED. THE AO ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 13 DISPUTED THE GENUINENESS OF THE TRANSACTION IN THE CASE OF SHRI PYARECHAND RANGLAL SHAH HUF . HE ALSO DISPUTED THE DEPOSITED OF RS.80 000/- IN THE BANK ACCOUNT OF SHRI VIPUL BAFNA AS ALSO FURTHER CASH D EPOSITS OF RS.80 000/- RS.1.50 LAKH ON DIFFERENT DATES. ALL THESE SUMS WER E ADVANCED TO THE ASSESSEE ON THE SAME DAY OF DEPOSIT. THE ASSESSEE S UBMITTED THAT THE SOURCE OF SUCH CASH WAS THE CASH IN HAND OF SHRI VI PUL BAFNA FROM HIS PAST SAVINGS. THE AO ONCE AGAIN DISMISSED THE EVIDENCES FURNISHED. 29. THE AO FURTHER NOTED THAT THE ASSESSEE HAD DEPO SITED A SUM OF RS.5 LAKH IN HIS ACCOUNT AND HAD CLAIMED THAT IT WAS A G IFT FROM SHRI NILESH J KOTHARI. IN SUPPORT OF SUCH CLAIM THE ASSESSEE FUR NISHED A COPY OF THE ACKNOWLEDGEMENT OF RETURN FILED BY SHRI KOTHARI AS ALSO HIS CAPITAL ACCOUNT. THE AO ASKED THE ASSESSEE TO FURNISH A COPY OF SHRI KOTHARIS BANK PAS-BOOK. ALLEGEDLY THE ASSESSEE FAILED TO DO SO. IN ORDER T O MAKE FURTHER ENQUIRIES THE AO ISSUED SUMMON TO THE ASSESSEE U/S.131 OF THE I.T ACT WHICH HE FOLLOWED UP WITH LETTERS ASKING THE ASSESSEE TO APPEAR BEFOR E HIM. THE ASSESSEE FINALLY APPEARED AND CONTENDED THAT HE WAS OUT OF STATION A ND THEREFORE COULD NOT ATTEND IN RESPONSE OF SUMMON ON THE SPECIFIED DATE. ACCORDING TO AO THE ASSESSEE WAS UNABLE TO FURNISH ANY EVIDENCE TO PROV E THAT HE WAS OUT OF STATION. THE AO ALLOWED FURTHER TIME TO THE ASSESSE E TO APPEAR BEFORE HIM. THE AR OF THE ASSESSEE APPEARED AFTER A FEW DAYS AN D FURNISHED A DETAILED REPLY TO THE SHOW-CAUSE NOTICE. THE AO NOTED THAT T HE ASSESSEE HAD DELIBERATELY AVOIDED APPEARING BEFORE HIM IN PERSON ; HE HAD ALSO FAILED TO PRODUCE THE KARTA OF SHRI PYARECHAND R SHAH HUF AND SHRI VIPUL M BAFNA FOR EXAMINATION. THE ASSESSEE HAD ALSO FAILED TO PRODUC E SHRI KOTHARI THE ALLEGED DONOR AND ALSO TO ESTABLISH HIS CREDITWORT HINESS. THE AO CAME TO THE CONCLUSION THAT THE GIFT AS ALSO THE DEPOSITS/ADVAN CES SHOWN BY THE ASSESSEE WERE NOT GENUINE. CONSEQUENTLY THE AO THUS ADDED T HE SUM OF RS.45 000/- + RS.2.50 LAKH + RS 5 LAKH = RS.7.95 LAKH AS UNEXPLAI NED CASH CREDITS IN TERMS OF SECTION 68 OF THE ACT ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 14 30. BEFORE LD. CIT(APPEALS) ASSESSEE REITERATED THE SAME SUBMISSION AS MADE BEFORE ASSESSING OFFICER LD. CIT(A) HOWEVER C ONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER:- 30 I HAVE CAREFULLY CONSIDERED THE FINDINGS AND TH E CONCLUSION OF THE AO WITH REGARD TO THE UNEXPLAINED DEPOSITS/ADVANCES OF RS.45 000 AND RS.2 50 000 AS ALSO THE GIFT OF RS.5 00 000. I HAVE ALSO GONE THROUGH THE LENGTHY AND OFTEN IRRELEVANT SUBMISSIONS OF THE ARS ON THIS ISSUE. FIRSTLY I DO NOT AGREE WITH THE REPEATED ASSERTION S OF THE ARS THAT THE AO HAD ACCEPTED THE EXPLANATIONS AND THE EVIDENCES FURNISHED BEFORE HIM WITH REGARD TO THE SAID DEPOSITS AND GIFTS. IF THAT WAS SO THERE COULD NOT HAVE BEEN ANY SCOPE TO MAKE ANY ADDITION. THE F ACT OF THE MATTER IS THAT THE ASSESSEE HAD ATTEMPTED TO EXPLAIN THE DEPO SITS/ADVANCES FROM SHRI PYARECHAND RANGLAL SHAH HUF AND FROM SHRI VIPU L BAFNA AS HAVING COME OUT OF THEIR PAST SAVINGS ONE FROM AGR ICULTURE AND ONE FROM SALARY. THE QUESTION THAT ARISES IS WHAT WERE THEY DOING WITH SUCH SUBSTANTIAL SAVINGS AND FOR HOW LONG DID THEY HOLD THE SAME IN CASH AND DURING WHICH YEARS AND AT WHAT RATES WERE SUCH SAVINGS GENERATED. THE AO'S CLEAR FINDING WAS THAT CASH DEPOSITS WERE MADE IN THE BANK ACCOUNTS OF THE HUF AND SHRI BAFNA AND ON SAME DAY (S) WERE GIVEN TO THE ASSESSEE AS ADVANCES. QUITE OBVIOUSLY IT WAS TH E ASSESSEES UNACCOUNTED MONIES WHICH WAS BROUGHT INTO HIS BOOKS IN THE GRAB OF SUCH DEPOSITS/ADVANCES. SIGNIFICANTLY SHRI BAFNA W AS AN EMPLOYEE OF THE ASSESSEE AND HARDLY HAD ANY INCOME TO BE IN A POSITION ARS THAT IT WAS NOT THE CONCERN OF THE ASSESSEE AS TO WOW THE D ONOR GENERATED THE FUNDS. QUITE CORRECT BUT IT HAS TO BE EXPLAINE D AS TO WHY SHOULD ANY ONE GIVE A GIFT TO THE ASSESSEE. SIMPLE FURNISHING OF THE DECLARATION OF THE DONOR OR HIS MAINTAINING BOOKS AND FILING THE R ETURN OF INCOME DOES NOT JUSTIFY THE GIFT. A GIFT HAS A DIFFERENT MEANIN G FROM A LOAN OR AN ADVANCE. IT INVOLVES AND ENTAILS EMOTIONS AND FEELI NGS OF LOVE AND AFFECTION OF CONCERN AND CARE; IT IS NOT ONLY A MO NETARY AND FINANCIAL TRANSACTION. THEREFORE APART FROM THE DOCUMENTARY EVIDENCE OF ENTRIES PASSED IT HAS NECESSARILY TO BE SHOWN THAT THERE W AS A REASON BEHIND GIVING THE GIFT. THERE HAS TO BE A RELATIONSHIP BET WEEN THE ASSESSEE AND THE DONOR. NONE OF THIS WAS ESTABLISHED. NOT EV EN AN ATTEMPT WAS MADE. SIMPLY RELYING ON CERTAIN CASE-LAWS IS NOT SU FFICIENT. 30.2 IN A SIMILAR MANNER THE DEPOSITS AND ADVANCES ALLEGEDLY TAKEN FROM THE HUF AND SHRI BAFNA WILL HAVE TO BE EXAMINE D AND APPRECIATED. UNFORTUNATELY AN EXAMINATION SHOWS THAT THE ENTRIE S THEMSELVES WERE NOT AS SIMPLE AS IS MADE OUT TO BE. THEY WERE MANIP ULATED TO GIVE THE TRANSACTIONS A LOOK OF GENUINENESS. SIGNIFICANTLY N EITHER OF THE TWO CREDITORS NOR EVEN THE DONOR NOR EVEN THE ASSESSEE APPEARED BEFORE THE AO WHICH MEANT THAT THE ASSESSEE WAS ONLY DEPE NDENT ON SUCH BOGUS DOCUMENTARY EVIDENCES TO SUBSTANTIATE HIS CAS E. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 15 30.3 TAKING ALL SUCH FACTS AND CIRCUMSTANCES OF THE CASE ON THIS ISSUE INTO CONSIDERATION IT IS HELD THAT NEITHER WAS THE IDENTITY OF THE ALLEGED CREDITORS OR THE DONOR ESTABLISHED NOR WAS THEIR CR EDITWORTHINESS. THE CONFIRMATIONS FILED AS ALSO RETURN OF INCOME MAY HA VE VALIDATED THE ENTRIES IN THE BOOKS ASS SUCH BUT NOT THE TRANSACTI ONS AS A WHOLE SINCE THE MOST IMPORTANT CRITERIA FOR ESTABLISHING THE GE NUINENESS OF THE TRANSACTIONS HAD REMAINED TO BE PROVED I.E. THE IDE NTITY AND CREDITWORTHINESS OF THE DONORS. THE AO THEREFORE W AS FULLY JUSTIFIED IN TREATING THE DEPOSIT/ADVANCES OF RS.45 000 AND RS.2 50 000 AS ALSO THE GIFT OF RS.5 00 000 AS UNEXPLAINED. THE ADDITION OF THE SUM OF RS.7 95 000 U/S 68 OF THE IT ACT IS THEREFORE CONF IRMED. 31. AT THE TIME OF HEARING BEFORE US LD. COUNSEL FO R THE ASSESSEE REITERATED THE SAME SUBMISSION AS MADE BEFORE LOWER AUTHORITIE S AND FURTHER SUBMITTED THAT IF ONE MORE OPPORTUNITY IS GIVE TO ASSESSEE HE WILL BE ABLE TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE CREDITORS/DONO R BY PRODUCING THEM BEFORE ASSESSING OFFICER. SINCE LD. DR DID NOT SERIOUSLY O BJECT TO THIS PRAYER OF THE ASSESSEE THE MATTER IS RESTORED BACK TO THE FILE O F ASSESSING OFFICER FOR SUCH EXERCISE. THIS GROUND OF ASSESSEES APPEAL IS ALLOW ED FOR STATISTICAL PURPOSES. 32. GROUND NO. 7 IS CONSEQUENTIAL IN NATURE AND DOE S NOT REQUIRE ANY ADJUDICATION. 33. THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. COMING TO REVENUES APPEAL IN ITA NO.3279/AHD/2008. 34. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS:- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN HOLDING THAT T HE ASSESSEE IS NOT BOUND TO MAINTAIN THE BOOKS OF ACCOUNTS AS PER THE REQUIREMENT OF INCOME-TAX DEPARTMENT. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN HOLDING THAT T HE A.O HAD COMPARED THE MARGIN OF GROSS PROFIT DISCLOSED BY SHRI DINESH CHANDRA P SHAH IS RETAILER WHEREAS THE ASSESSEE IS WHOLESALER AND THERE WAS NO CASE OF ANY COMPARISON AS COMPARED BY THE A.O. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 16 [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN DELETING THE A DDITION MADE BY THE A.O OF RS.15 10 880/- ON ACCOUNT OF LOW GROSS PROFI T. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN HOLDING THAT T HE A/.O HAS NOT DISPUTED THE GENUINENESS OF THE PAYMENTS MADE TO TR ANSPORTERS IN CASH IN EXCESS OF RS.20 000/- AND THE A.O OUGHT TO HAVE CONSIDERED THE GROUND LEVEL SITUATION OF THE TRANSACTION IN RESPEC T OF SUCH TRANSPORTATION CHARGES BEFORE MAKING DISALLOWANCE UNDER SEC.40A(3) OF THE ACT. [5] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I SURAT HAS ERRED IN DELETING THE D ISALLOWANCE MADE BY THE A.O OF RS.43 619/- UNDER SEC.40A(3) OF THE ACT. 35. FIRST THREE GROUNDS RELATE TO REJECTION OF BOOK RESULTS AND THE ADDITION OF RS.15 10 880/- TO THE GROSS PROFIT. ON THE BASIS OF HIS FINDINGS REGARDING UNDERVALUATION OF THE CLOSING STOCK AS WELL AS THE SHORTAGES THE ASSESSING OFFICER TOOK THE VIEW THAT ASSESSEES BOOKS OF ACCO UNTS WERE DEFECTIVE. HE THEREFORE REJECTED THE BOOK RESULTS U/S.145(3) OF T HE ACT AND APPLYING THE GP RATIO OF 8% AND AFTER ADJUSTING THE GP AS DISCLOSED BY ASSESSEE MADE THE ADDITION OF RS.15 10 880/-. LD. CIT(APPEALS) DELETE D THIS ADDITION MAINLY ON THE GROUND THAT SINCE THE AO HAD ALREADY MADE ADDIT ION WITH REGARD TO UNDERVALUATION OF CLOSING STOCK AND AS ALSO THE SHO RTAGES HE SHOULD NOT HAVE MADE ANY FURTHER ADDITION. LD. CIT(APPEALS) WAS ALS O OF THE VIEW THAT SINCE THE ADDITION MADE BY AO ON ACCOUNT OF UNDERVALUATIO N OF STOCK AND SHORTAGES HAVE BEEN CONFIRMED BY HIM THE ADDITION MADE BY APP LYING HIGHER GP RATIO REQUIRES TO BE DELETED. 36. SINCE IN ASSESSEES APPEAL WE HAVE ALREADY REST ORED THE MATTER BACK TO THE FILE OF ASSESSING OFFICER IN RESPECT OF UNDERVA LUATION OF CLOSING STOCK AND SHORTAGES THE GROUND ON WHICH LD. CIT(APPEALS) GAVE RELIEF TO THE ASSESSEE NO LONGER EXIST. THEREFORE THE ORDER PASSED BY LD. CIT(APPEALS) ON THIS ISSUE IS ALSO SET ASIDE AND THIS MATTER IS ALSO RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR DIRECTION IN ASSESSEES APPEAL ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 17 IN RESPECT OF UNDERVALUATION OF CLOSING STOCK AND S HORTAGES. THESE THREE GROUNDS OF REVENUES APPEAL ARE ALLOWED FOR STATIST ICAL PURPOSES. 37. GROUND NOS. 4 & 5 RELATE TO DISALLOWANCE OF SUM OF RS.43 619/- U/S.40A(3) OF THE ACT. 38. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MADE PAYMENTS TOWARDS TRANSPORTAT ION IN CERTAIN CASES IN CASH WHICH WERE IN EXCESS OF RS.20 000/-. HE ASKED THE ASSESSEE TO FURNISH AN EXPLANATION AS TO WHY DISALLOWANCE SHOULD NOT BE MADE U/S40A(3). THE ASSESSEE EXPLAINED THAT THE PAYMENTS WERE MADE TO T RUCK DRIVERS WHICH WERE FULLY COVERED BY RULE 6DD AND BY CBDTS CIRCULAR NO .220 DATED 31-05-1977. IT WAS ARGUED THAT PROVISIONS OF SECTION 40A(3) WAS NOT ABSOLUTE AND THAT THE BUSINESS EXPEDIENCY AND OTHERE RELEVANT FACTORS OUG HT TO BE TAKEN INTO CONSIDERATION WHILE APPLYING THE SAID PROVISION. TH E ASSESSEE PURCHASED MATERIALS FROM FAR OFF PLACES IN PUNJAB CHATTISGAR H ORISSA AND JHARKHAND ETC. THE MATERIALS ARE DELIVERED BY TRUCKS. THE DRIVERS HAVE TO BE PAID ON DELIVERY. DELIVERIES ARE MOSTLY MADE AT NIGHT. THEY DO NOT AC CEPT CHEQUES AND IN ANY CASE THEE IS NO QUESTION OF ISSUING A CHEQUE AND E NCASHING THE SAME AT NIGHTS. ALL THESE FACTORS OUGHT TO HAVE BEEN TAKEN BY THE ASSESSING OFFICER INTO CONSIDERATION BEFORE MAKING THE DISALLOWANCE. THE AO HOWEVER REJECTED THE ASSESSEES SUBMISSION. HE OBSERVED THAT RULES 6 DD WAS NOT APPLICABLE IN ASSESSEES CASE. HE PLACED RELIANCE ON CERTAIN C OMMUNICATIONS FROM THE CBDT AND OBSERVED THAT THE ASSESSEE WAS UNABLE TO P ROVE AS TO WHY HIS MATERIALS ALWAYS REACHED AT NIGHT AND WHY THE DRIVE RS WERE ALWAYS PAID IN NIGHT HOURS ITSELF. THE DRIVERS ARE USUALLY PAID BY THE TRUCK OWNERS FOR RECURRING EXPENSES ON THE WAY AND THEY KEEP SUFFIC IENT CASH WITH THEM FOR MEETING UNFORESEEN CIRCUMSTANCES. ON THE BASIS OF S UCH OBSERVATIONS THE AO DISALLOWED 20% OF THE TOTAL PAYMENTS MADE IN CAS H AND MADE THE ADDITION OF RS.43 619/-. LD. CIT(APPEALS) HOWEVER DELETED TH IS ADDITION. ITA NO.3258 & 3279/AHD/2008 A.Y. 2005-06 SH. SHAILESH L BAFNA V. ITO WD-2(1) SRT PAGE 18 39. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ONLY DISPUTE IS WHETHER PAYMENTS MADE TO TRUCK DRIVER IS COVERED UNDER EXCEPTIONS OF RULE 6DD OF THE INCOME-TAX RULES OR NOT. WE FUR THER FIND THAT LD. CIT(APPEALS) HIMSELF HAS MENTIONED IN HIS ORDER THA T PAYMENTS IN QUESTION WERE NOT COVERED UNDER THE RULES 6DD OF THE I.T. RU LES. THEREFORE HE WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.43 619/- M ADE BY ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE AC T. THE ORDER PASSED BY LD. CIT(A) IS HEREBY SET ASIDE AND THAT OF ASSESSING OF FICER IS RESTORED. THIS GROUND OF REVENUES APPEAL IS ALLOWED. 39. IN THE RESULT APPEALS OF ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 8 TH JULY 2011 SD/- SD/- ( G.D.AGARWAL ) ( D.K. TYAGI ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 08/07/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-II SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD