Shri Ankit Maheshwari, Surat v. The ACIT.,Circle-2,, Surat

ITA 3556/AHD/2008 | 2004-2005
Pronouncement Date: 28-02-2011 | Result: Dismissed

Appeal Details

RSA Number 355620514 RSA 2008
Assessee PAN AFGPM0328G
Bench Ahmedabad
Appeal Number ITA 3556/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 1 day(s)
Appellant Shri Ankit Maheshwari, Surat
Respondent The ACIT.,Circle-2,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 27-01-2011
Next Hearing Date 27-01-2011
Assessment Year 2004-2005
Appeal Filed On 27-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HON'BLE SHRI G.D.AGRAWAL V.P. & HONB LE SHRI T.K. SHARMA J.M. ) I.T.A. NO. 3556/AHD./2008 : ASSESSMENT YEA R : 2004-2005 SHRI ANKIT MAHESHWARI SURAT -VS- A.C.I.T. CIRCLE-2 SURAT (PAN : AFGPM 0328G) (APPELLANT) (RESPONDENT ) I.T.A. NO. 3655/AHD./2008 : ASSESSMENT YEAR : 2004-2005 A.C.I.T. CIRCLE-2 SURAT -VS- SHRI ANKIT MAHESHWARI SURAT (APPELLANT) (RESPONDENT) I.T.A. NO. 3558/AHD./2008 : ASSESSMENT YEAR : 2 005-2006 SHRI ANKIT MAHESHWARI SURAT -VS- A.C.I.T. CIRCLE-2 SURAT (PAN : AFGPM 0328G) (APPELLANT) (RESPONDEN T) I.T.A. NO. 3656/AHD./2008 : ASSESSMENT YEAR : 2005-2006 A.C.I.T. CIRCLE-2 SURAT -VS- SHRI ANKIT MAHESHWARI SURAT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RASESH SHAH A. R. DEPARTMENT BY : SHRI K. MADHUSUDAN SR . D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THESE CROSS APPEALS ARE AGAINST TWO SEPARATE ORDER S DATED 25.08.2008 & 30.08.2008 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-II SURAT FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. ALL THESE APPEALS ARE HEARD ON THE SAME DATE AND ARE ARGUED BY THE COMMON REPRESENTATIVES. THEREFORE THESE APP EALS ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE CROSS APPEALS FOR THE ASSES SMENT YEAR 2004-05. 2 ITA NO. 3556 3558 3655 & 3656-AHD-2008 ITA NO. 3556/AHD./08 : ASSESSMENT YEAR 2004-05 3. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT FOR THE ASSESSMENT YEAR 2004 -05 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY CONFIRM ING THE ACTION OF THE ASSESSING OFFICER BY SUSTAINING THE ADDITION OF RS.39 20 00 0/- OUT OF TOTAL OF RS.55 20 000/- ON ACCOUNT OF UNEXPLAINED CASH CREDITS U/S 68 OF THE I.T.ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY CONFIRM ING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE SUM OF RS.3 30 000/- O N ACCOUNT OF ALLEGED EXCESSIVE PAYMENT MADE TO RELATIVES U/S 40A(2)(B) OF THE I. T. ACT. ITA NO. 3655/AHD./08 : ASSESSMENT YEAR 2004-05 3.1 THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT FOR THE ASSESSMENT YEAR 2004 -05 WHEREIN THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: [1] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A]- IT SURAT HAS ERRED IN HOLDING THAT THE ASSESSEE HAD DISCHARGED THE ONUS LIES UPON HIM TO PROVE THE IDENTITY OF THE CREDITORS CREDI T WORTHINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION HUT HAS IGNORED T HE FACTS THAT THE ASSESSEE HAD NEITHER PRODUCED THE CREDITORS IN RESPECT OF CRED IT OF RS.16 00 000/- IN THE NAMES OF SIX CREDITORS NOR HAS FURNISHED THEIR PRESENT POSTAL ADDRESS TO THE AO DURING THE CURSE OF ASSESSMENT PROCEEDINGS. THE CIT[A] H AS ALSO NOT APPRECIATED THAT THE ASSESSEE HAD FURNISHED ONLY CONFIRMATORY STAT EMENT OF THE CREDITORS TO THE AO DURING THE COURSE OF REMAND REPORT PROCEEDINGS FR OM WHICH THE GENUINENESS OF THE TRANSACTION CANNOT BE VERIFIED [2] ON THE FACT AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A)- II SURAT HAS ERRED IN NOT TAKING INTO CONSIDERAT ION THE DECISIONS OF HON'BLE SUPREME COURT REFERRED TO BY THE AO IN THE ORDER OF ASSESSMENT IN THE FOLLOWING CASES [A] ROSHANLAL D HATTI VS CIT 107 ITR 936 (SC) [B] KALEHHAN MOHD. HANIF VS CIT 50 ITR 1 (SC) AND AS PER THE RATIO LAID DOWN IN THE ABOVE MENTI ONED CASES THE LAW IS WELL SETTLED THAT THE ONUS TO PROVE THE SOURCES OF TH E SUM OF MONEY FOUND TO HAVE BEEN RECEIVED BY THE ASSESSEE IS ON HIM. WHERE THE NAT URE OF SOURCE OF RECEIPT WHETHER IT HE OF MONEY OR OTHER PROPERTY CANNOT BE SATISF ACTORILY EXPLAINED BY THE ASSESSEE. IT IS OPEN FOR THE REVENUE TO HOLD THA T IT IS INCOME OF THE ASSESSEE AND 3 ITA NO. 3556 3558 3655 & 3656-AHD-2008 NO FURTHER BURDEN LIES ON THE REVENUE TO SHOW THA T THE INCOME IS FROM ANY PARTICULAR SOURCE [3] ON THE FACT AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)- II SURAT HAS ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS.16 00 000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT. [4] ON THE FACT AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)- II SURAT HAS ERRED IN HOLDING THAT AO HAD WITHOU T ANY BASE ADOPTED THE RATE OF 0.50% COMMISSION AS AGAINST 3% CLAIMED BY THE ASS ESSEE IGNORING THE FACT THAT THE GENERAL RATE OF COMMISSION IN THE LINE OF THE BUSINESS OF THE ASSESSEE IS RANGING FROM 0.25% TO 0 50%. [5] ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT HAS ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER OF RS.75 54 740/- ON AC COUNT OF DISALLOWANCE OF COMMISSION PAYMENT. 4. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S AN INDIVIDUAL ENGAGED IN THE BUSINESS OF YARN ON WHOLESALE BASIS IN HIS PROPRIETARY CONCERN NAMELY KOTHARI SYNTHETICS. FOR THE ASSESSMENT YEAR UNDER APPEAL HE FILED THE RETURN O F INCOME ON 31.10.2004 DECLARING TOTAL INCOME OF RS.32 36 990/-. THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 29.12.2006 DETERMINING THE TOTAL INCOME OF RS.1 66 41 730/- AFTER MAKING THE FOLLOWING ADDITIONS: A. RS.55 20 000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S 68 B. RS.75 54 740/- ON ACCOUNT OF DISALLOWANCE OF C OMMISSION C. RS.3 30 000/- ON ACCOUNT OF DISALLOWANCE U/S 4 0A(2)(B) OF THE I.T.ACT 5. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ADDITION OF RS.39 20 000/- OUT OF ADD ITION OF RS.55 20 000/-. THE DISALLOWANCE OF COMMISSION WAS TOTALLY DELETED. THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) CONFIRMED THE DISALLOWANCE OF RS.3 30 000/- UNDER SECTION 40A (2)(B) ON ACCOUNT OF SALARY PAYMENT. 6. AGGRIEVED WITH THE ABOVE ORDER OF THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL AGAINST THE ADDITION CONF IRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND REVENUE PREFERRED THE APPEAL AGAIN ST THE RELIEF ALLOWED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 4 ITA NO. 3556 3558 3655 & 3656-AHD-2008 7. GROUND NO.1 OF ASSESSEES APPEAL IS AGAINST SUST AINING THE ADDITION OF RS.39 20 000/- OUT OF TOTAL ADDITION OF RS.55 20 000/- ON ACCOUNT OF U NEXPLAINED CREDIT UNDER SECTION 68 OF THE I.T. ACT. GROUND NOS. 1 TO 3 OF REVENUES APPEAL ARE AG AINST THE DELETION OF ADDITION OF RS.16 LAKHS IN THE NAME OF SIX CREDITORS. 8. AT THE TIME OF HEARING BEFORE US SHRI RASESH SH AH APPEARED ON BEHALF OF THE ASSESSEE AND STATED THAT THE ADDITION MADE UNDER SECTION 68 OF T HE I.T. ACT AMOUNTING TO RS.55 20 000/- CAN BE CLASSIFIED IN FOUR GROUPS. HE ELABORATED THAT IN TH E FIRST GROUP ADDITION IS OF RS.11 50 000/- IN THE NAME OF TWO CREDITORS I.E. RS.5 50 000/- OF M/S. DA NA TEXTILES AND RS.6 LAKHS IN THE NAME OF CREDITOR IN CASE OF NOORI PROCESSORS. IN CASE OF DA NA TEXTILES THE ASSESSEE FILED CONFIRMATION WITH PAN AND ALSO BANK STATEMENT. THE ASSESSING OF FICER COULD NOT FIND M/S. DANA TEXTILES AT GIVEN ADDRESS. HE SUBMITTED THAT PAN OF DANA TEXTIL ES WITH COMPLETE ADDRESS WAS AVAILABLE. THE ASSESSEE USED MONEY ONLY FOR FOUR DAYS. THE AM OUNT OF RS 5 50 000 WAS RECEIVED BY THE ASSESSEE BY ACCOUNT PAYEE CHEQUE ON 13.08.2003 WHIC H WAS REPAID BY THE ASSESSEE ON 22.08.2003. THE ASSESSEE WAS NOT HAVING ANY CONTACT WITH THE SAID PARTY AT THE TIME OF ASSESSMENT PROCEEDINGS AS THE LOAN TAKEN BY ASSESSE E WAS REPAID WITHIN FOUR DAYS. THE COUNSEL OF THE ASSESSEE EXPLAINED THAT IT IS QUITE POSSIBLE THAT THE ASSESSEE MIGHT HAVE CHANGED ITS ADDRESS AND FOR THIS REASON HE WAS NOT FOUND AT THE GIVEN A DDRESS. THE ASSESSING OFFICER IN REMAND REPORT HAS OBSERVED THAT THE SIGNATURE IN CONFIRMA TION AND PHOTOCOPIES OF CHEQUE ISSUED BY THE PARTIES DIFFERED. WITH REGARD TO THIS OBJECTION CO UNSEL OF THE ASSESSEE SUBMITTED THAT M/S DANA TEXTILES IS A PARTNERSHIP FIRM. SO DIFFERENT PARTN ERS HAVE SIGNED THE CONFIRMATION AND CHEQUES. THE RELEVANT PAPERS AT AVAILABLE AT PAGE NOS. 11 TO 14 OF THE PAPER BOOK. 8.1 WITH REGARD TO NOORI PROCESSORS THE ASSESSEE F ILED ONLY LEDGER ACCOUNT FROM BOOKS ALONG WITH BANK STATEMENT. IT WAS SUBMITTED THAT ACCOUNT WAS SQUARED UP AND THE ASSESSEE RECEIVED RS 4 50 000/- THROUGH ACCOUNT PAYEE CHEQUE ON 04.08.20 03 AND HAD REPAID THE SAME THE VERY NEXT DAY THROUGH ACCOUNT PAYEE CHEQUE. THE BALANCE AMOU NT WAS RECEIVED ON 02.09.2003 BY ACCOUNT PAYEE CHEQUE WHICH WAS REPAID ON 20.09 2003. HE SU BMITTED THAT RELEVANT PAPERS ARE AVAILABLE AT PAGE NOS. 15 TO 20 OF THE PAPER BOOK. 5 ITA NO. 3556 3558 3655 & 3656-AHD-2008 8.2 COUNSEL OF THE ASSESSEE EXPLAINED THAT IN SECON D GROUP THERE ARE SEVEN CREDITORS TOTALING TO RS.8 20 000/-. THE ASSESSING OFFICER DID NOT ACC EPT THE CASH CREDIT IN THE NAME OF THESE SEVEN CREDITORS ON THE GROUND THAT CASH WAS DEPO.SITED IN THE BANK ACCOUNT OF THOSE PARTIES ON THE SAME DAY OR JUST ONE DAY BEFORE THE DATE OF CLEARANCE OF CHEQUE GIVEN TO THE ASSESSEE. THE COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE SEVEN CREDITORS FILED CONFIRMATION ACKNOWLEDGEMENT OF RETURN BANK STATEMENT BALANCE-SHEET CAPITAL ACCOUNT AND CASH FLOW STATEMENT. THE RELEVANT PAPERS ARE AVAILABLE AT PAGE NOS. 21 TO 75 OF THE PAPER BOOK. WITH REGARD TO ALL THESE DEPOSITORS IT WAS CONTENDED THAT ALL THE SEVEN CREDITORS ARE REGULARL Y ASSESSED TO INCOME TAX AND RELEVANT DEPOSITS WERE DULY SHOWN IN THEIR BALANCE-SHEET ON ASSETS SI DE. THE COPIES OF THE BALANCE-SHEET WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. THE ASSESSEE HAS PAID THE INTEREST TO ALL THE SEVEN PARTIES. WITH REGARD TO SOURCE OF CASH DE POSITED IN THE BANK ACCOUNT OF RESPECTIVE CREDITORS THE COUNSEL OF THE ASSESSEE SUBMITTED TH AT SOURCES OF DEPOSITS ARE REFLECTED IN THE CASH FLOW STATEMENT CERTIFIED BY RESPECTIVE CHARTERED AC COUNTANTS OF THE DEPOSITORS. THE CLOSING BALANCE IN THE CASH FLOW WORKING IS TALLIED WITH TH E CLOSING BALANCE OF CASH IN THE BALANCE SHEET PRODUCED BY THE DEPOSITORS ALONG WITH THE RETURN OF INCOME. THE DEPOSITORS HAVE ALSO SHOWN THE INTEREST INCOME IN THEIR PROFIT AND LOSS ACCOUNT AN D ALSO OFFERED THE SAME IN THEIR INCOME-TAX RETURN. THE RELEVANT PAPERS ARE AVAILABLE AT PAGE N OS. 21 TO 75 OF THE PAPER BOOK. 8.3 THE THIRD GROUP THE COUNSEL OF THE ASSESSEE EX PLAINED COMPRISES OF TEN CREDITORS FROM WHOM THE ASSESSEE RECEIVED RS.19 50 000/-. THESE WE RE NOT ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT CAPITAL ACCOUNT BALANCE SHEET ACKNOWLEDGEMENT OF RETURN OF INCOME AND BANK STATEMENT WERE NOT FURNISHED IN RESPECT OF THE SE TEN CREDITORS IN REMAND PROCEEDINGS. IT WAS EXPLAINED THAT THE ASSESSEE FILED COPY OF CONFIRMAT ION ACKNOWLEDGEMENT OF RETURN OF INCOME CAPITAL ACCOUNT BALANCE-SHEET AND BANK STATEMENT O F THE OF THE CREDITORS BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE RELEVANT P APERS ARE AVAILABLE AT PAGE NO. 76 TO 145 OF THE PAPER BOOK. COUNSEL OF THE ASSESSEE CLARIFIE D THAT THE BANK STATEMENTS OF THE CREDITORS WERE FILED AT THE TIME OF ASSESSMENT PROCEEDINGS IN FEW CASES AND IN OTHER CASES THE ASSESSING OFFICER HAD NOT LOOKED INTO THE RECORDS PROPERLY. T HEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CALLED FOR THE REMAND REPORT ON THE PAPERS SUBMITTED BEFORE HIM. IN THE REMAND REPORT ASSESSING OFFICER STATED THAT COPIES OF THE CAPITAL ACCOUNT BALANCE SHEET AND BANK 6 ITA NO. 3556 3558 3655 & 3656-AHD-2008 STATEMENT HAVE BEEN FILED DURING THE REMAND PROCEED INGS AND THESE WERE NOT FILED AT THE TIME OF ASSESSMENT. THEREFORE THERE ARE FRESH EVIDENCES AN D ARE NOT ADMISSIBLE IN TERMS OF RULE 46A. IN THIS REGARD COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE CREDITORS UNDER THIS CATEGORY ARE REGULARLY ASSESSED TO TAX. THEY HAVE ALREADY SUBMIT TED COPIES OF BALANCE-SHEET AND CAPITAL ACCOUNT AT THE TIME OF FILING THE RETURN OF INCOME. ALL THE CONFIRMATIONS WITH ADDRESSES WERE DULY FILED AT THE TIME OF ASSESSMENT PROCEEDINGS WITH PA N OF THE CREDITORS. HE EXPLAINED THAT THESE DOCUMENTS ARE THIRD PARTY DOCUMENTS. THE ASSESSEE W AS PREVENTED FROM SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE THE EVIDENCES BEFORE THE ASS ESSING OFFICER. KEEPING IN VIEW THE FACT THAT THESE ARE THIRD PARTY DOCUMENTS THE ASSESSING OFFI CER OUGHT TO HAVE ACCEPTED THE SAME IN THE REMAND REPORT. 8.4 THE COUNSEL OF THE ASSESSEE EXPLAINED THAT THE FOURTH GROUP COMPRISES THE ADDITION OF RS.16 LAKHS IN RESPECT OF SIX CREDITORS. THIS WAS N OT ACCEPTED BY THE ASSESSING OFFICER BECAUSE AMOUNT OF DEPOSIT WAS GREATER THAN THEIR OWN CAPITA L. IT WAS SUBMITTED THAT THE CONFIRMATION OF ALL THE SIX PARTIES WITH ACKNOWLEDGEMENT OF RETURN OF INCOME BALANCE-SHEET CAPITAL ACCOUNT AND BANK STATEMENT WAS FURNISHED BEFORE THE ASSESSING O FFICER. THESE PAPERS ARE AVAILABLE AT PAGE NOS. 146 TO 183 OF THE PAPER BOOK. THE AMOUNT SHOWN IN THE BALANCE-SHEET OF THE ASSESSEE TALLIED WITH THE AMOUNT SHOWN IN THE BALANCE SHEET OF THE C REDITORS. THE MERE FACT THAT DEPOSIT IS GREATER THAN THEIR CAPITAL IS NO GROUND TO DISBELIEVE THE G ENUINENESS OF THE CREDIT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DELETED THE ADDITION OF RS.16 LAKHS ON THE BASIS OF FINDING AT PARA NO.7.3 OF THE IMPUGNED ORDER. THE V IEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THIS REGARD BE UPHELD. 8.5 AFTER NARRATING THE AFORESAID FACTS COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVED ALL THE LOANS THROUGH ACCOUNT PAYEE CHEQUE AND THE ASSESSEE FILED THE CONFIRMATION PAN DETAILS BALANCE SHEET CAPITAL ACCOUNT AND BAN K STATEMENT IN CASE OF CREDITORS CATEGORIZED IN SECOND THIRD AND FOURTH GROUP. IN CASE OF LOAN CAT EGORIZED IN THE SECOND GROUP CASH WAS DEPOSITED BEFORE LOAN WAS RECEIVED. THE ASSESSEE FI LED THE CASH FLOW STATEMENT. IN CASE OF CREDITORS CATEGORIZED IN FIRST GROUP THE ASSESSEE FILED THE CONFIRMATION LEDGER ACCOUNT AND BANK STATEMENT IN CASE OF M/S. DANA TEXTILES. IN THE CAS E OF NOORI PROCESSORS CATEGORIZED IN THE FIRST 7 ITA NO. 3556 3558 3655 & 3656-AHD-2008 GROUP THE ASSESSEE COULD NOT FILE THE CONFIRMATION . HOWEVER THE LEDGER ACCOUNT PAN DETAILS AND BANK STATEMENT FROM BOOKS OF ASSESSEE WERE FURN ISHED. THE LOAN WAS RECEIVED FOR TEMPORARY PERIOD. THE ASSESSEE PAID INTEREST IN CASE OF ALL T HE CREDITORS CATEGORIZED IN SECOND THIRD AND FOURTH GROUPS. IN RESPECT OF CREDITORS CATEGORIZED IN FIRST GROUP NO INTEREST WAS PAID BECAUSE LOANS WERE RECEIVED FOR A VERY SHORT PERIOD. IT WAS SUBMITTED THAT WHEN THE LENDERS ARE ASSESSED TO TAX AND LOANS ARE RECEIVED THROUGH ACCOUNT PAYEE CHEQUES WHICH ARE SUPPORTED BY CONFIRMATION AND PAN DETAILS ADDITION CANNOT BE MA DE KEEPING IN VIEW THE DECISION OF HON'BLE GUJARAT HIGH COURT IN CASE OF DCIT VS. ROHINI BUILD ERS [256 ITR 360] (GUJ). THE SPECIAL LEAVE PETITION AGAINST THIS JUDGEMENT IS REJECTED BY THE HON'BLE SUPREME COURT REPORTED IN 254 ITR 276 (STATUTE). THE ASSESSEE IS NOT REQUIRED TO PROV E THE SOURCE OF THE SOURCE AS HELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NEMI CHA ND KOTHARI VS. CIT REPORTED IN 264 ITR 254 (GUJ). TO SUM UP IT WAS CONTENDED THAT ADDITIO N OF CASH CREDIT CATEGORIZED IN FIRST SECOND AND THIRD GROUP BE DELETED AND VIEW TAKEN BY THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF CASH CREDITOR IN FOURTH GROUP BE UPHELD. 9. ON THE OTHER HAND SHRI K. MADHUSUDAN SR. D.R. APPEARED ON THE BEHALF OF THE REVENUE AND POINTED OUT THAT IN RESPECT OF TWO CREDITORS CA TEGORIZED IN FIRST GROUP THE ASSESSEE HAS NOT FURNISHED THE CONFIRMATION. THEREFORE THE ADDITION WAS RIGHTLY CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IN RESPECT OF SEVEN CREDITORS CATEGORIZED IN THE SECOND GROUP CASH WAS DEPOSITED ON THE SAME DAY OR BEFORE ONE DAY OF CLEARANCE OF CHEQUE GIVEN TO THE ASSESSEE. THEREFORE CREDITWORTHINESS OF THE CREDIT ORS IS NOT PROVED. IN RESPECT OF TEN CREDITORS THE ASSESSEE HAS FURNISHED ADDITIONAL EVIDENCES BEF ORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE THESE WERE RIGHTLY NOT ADM ITTED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). WITH REGARD TO SIX CREDITORS C ATEGORIZED IN THE FOURTH GROUP IT WAS CONTENDED THAT THE AMOUNT ADVANCED TO THE ASSESSEE IS GREATER THAN THEIR OWN CAPITAL. THEREFORE CREDITWORTHINESS OF THE CREDITORS IS DOUBTFUL AND A DDITION OF RS.16 LAKHS WAS RIGHTLY MADE BY THE ASSESSING OFFICER UNDER SECTION 68 OF THE I.T.ACT 1961 AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN DELETING TH E SAME. 8 ITA NO. 3556 3558 3655 & 3656-AHD-2008 10. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) REMANDED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER VID E LETTER DATED 19.07.2007. IN THE REMAND REPORT THE ASSESSING OFFICER HAS STATED THAT THE SIGNATURE ON THE CONFIRMATION LETTERS WHICH WERE FURNISHED ON THE LAST DAY DID NOT TALLY WITH THE S IGNATURES OF THE SAME PERSONS ON CHEQUES ISSUED BY THEM. IN THE COURSE OF REMAND PROCEEDINGS THE A SSESSEE WAS ASKED TO PROVIDE SPECIMEN SIGNATURE OF THE SAID PERSONS. THIS WAS NOT COMPLIE D BY THE ASSESSEE ON THE GROUND THAT BOTH THE FIRMS M/S. DANA TEXTILES AND M/S. NOORI PROCESSORS HAD BEEN CLOSED. THE ASSESSING OFFICER CONDUCTED THE FIELD ENQUIRIES AND FOUND THAT NONE O F THE PARTIES WERE AVAILABLE AT THE GIVEN ADDRESS. IN THIS CONNECTION IT IS PERTINENT TO NOT E THAT IN THE CONFIRMATION THE PAN OF M/S. DANA TEXTILES IS AVAILABLE WHICH IS AACFD 7812K (PAGE N O.11 OF THE PAPER BOOK). IT APPEARS THAT NONE OF THE DEPARTMENTAL AUTHORITIES BELOW MADE AN ATTEMPT TO MAKE CROSS-VERIFICATION FROM THE ASSESSMENT RECORDS OF DANA TEXTILES. WE ARE THEREF ORE OF THE VIEW THAT ADDITION IN RESPECT OF CASH CREDIT OF DANA TEXTILES AMOUNTING TO RS.5 50 0 00/- IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFIC ER WILL MAKE NECESSARY VERIFICATION FROM THE ASSESSMENT RECORDS OF THE SAID PARTY OBTAIN THE PR ESENT ADDRESS OF THE ASSESSEE AND READJUDICATE THE ADDITIONS AFRESH AFTER GIVING OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 10.1 REGARDING ADDITION OF M/S. NOORI PROCESSORS W E ARE OF THE VIEW THAT THIS ADDITION WAS RIGHTLY CONFIRMED BY THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS). THE ASSESSEE HAS NOT FURNISHED THE PAN OF THIS CREDITOR. IT IS WELL-SETT LED LAW THAT ONUS IS ON THE ASSESSEE TO PROVE THE IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE T RANSACTION. THIS ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE. WE THEREFORE DECLINE TO INTERFER E WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 10.2 WITH REGARD TO REMAINING CASH CREDITS WE ARE OF THE VIEW THAT THE ASSESSEE HAS FURNISHED ALL THE NECESSARY DETAILS. THE MERE FACT THAT THE C REDITOR HAS DEPOSITED CASH JUST PRIOR TO ISSUE OF NOTICE OR AMOUNT OF LOANS ADVANCED IS MORE THAN THE CAPITAL ETC. IS NO GROUND TO TREAT THE CASH CREDIT AS UNEXPLAINED PARTICULARLY WHEN THE ASSES SEE HAS FURNISHED THE CONFIRMATION WITH PAN ALL THE CREDITORS ARE ASSESSED TO TAX LOAN AMOUNT IS DULY REFLECTED IN THE ASSESSMENT RECORD. APART 9 ITA NO. 3556 3558 3655 & 3656-AHD-2008 FROM THIS IN RESPECT OF ALL THESE CREDITORS THE A SSESSEE HAS PAID THE INTEREST ON AMOUNT OF LOANS. TO SUM UP WE ARE OF THE VIEW THAT ON DOUBTS AND SU SPICION THE ASSESSING OFFICER TREATED CASH CREDIT IN CATEGORY NOS. 2 TO 4 AS UNEXPLAINED. WE ACCORDINGLY FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF ROHINI BU ILDERS ( SUPRA ) AGAINST WHICH THE SLP OF THE DEPARTMENT HAS BEEN REJECTED DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 11. FACTS RELATING TO GROUND NO.2 OF ASSESSEES APP EAL FOR THE ASSESSMENT YEAR 2004-05 ARE THAT THE ASSESSEE PAID SALARIES TO SHRI SANJAY MAHE SWARI OF RS.4 08 000/- AND MRS. DIPTI MAHESWARI OF RS.2 52 000/-. SINCE THESE PAYMENTS WE RE COVERED UNDER SECTION 40A(2)(B) THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH THE NATURE OF WORK DONE BY THESE INDIVIDUALS AND ASKED THE ASSESSMENT TO SHOW CAUSE WHY THE PAYM ENTS SHOULD NOT BE CONSIDERED AS EXCESSIVE AND UNREASONABLE AS PER THE PROVISIONS CONTAINED IN SECTION 40A(2)(B) OF THE ACT. TO THIS QUERY THE ASSESSEE REPLIED THAT SHRI SANJAY MAHESWARI IS ELDER BROTHER OF THE ASSESSEE. HE IS B.E. AND CONTROLLED TOTAL PURCHASE OF THE YARN FROM OUTSIDE INDIA AND MONITORED CUSTOM CLEARANCES AT VARIOUS PORTS IN INDIA. HE IS HAVING GOOD KNOWLEDGE OF QUALITY OF YARN AND ALL FORMALITIES OF IMPORT AND EXPORT BUSINESS WHICH HELPED THE ASSESS EE A LOT. SALARY PAID TO HIM IS FAIR AND REASONABLE LOOKING TO THE SERVICES RENDERED BY HIM . WITH REGARD TO SALARY OF RS.2 52 000/- PAID TO SMT. DIPTI MAHESWARI IT WAS EXPLAINED THAT SHE IS AN M.B.A. IN FINANCE AND MONITORED TOTAL FINANCE OF THE FIRM WITH BANKERS/FINANCIERS AND MON ITORED THE ACCOUNTS. SALARY PAID TO HER IS VERY REASONABLE CONSIDERING HER SERVICES. THEREFORE TH E SAME SHOULD BE ALLOWED AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ASSESSME NT ORDER THE ASSESSING OFFICER DISALLOWED RS.3 30 000/- BEING 50% OF THE SALARY PAID TO THE A FORESAID TWO EMPLOYEES. 12. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE AFORESAID DISALLOWANCE FOR THE DETAIL ED REASONS GIVEN IN PARA 15 WHICH IS EXTRACTED BELOW. 15. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY T HE ASSESSING OFFICER ON ONE HAND AND THE SUBMISSIONS MADE BY THE AR ON THE O THER. THE ASSESSEE IS AN INDIVIDUAL WHO RUNS A PROPRIETORSHIP FIRM IN THE NAME AND STYLE OF M/S. KOTHARI IMPEX. THE PROVISIONS OF SEC. 20A BEGINS WITH THE NON-OBSTANTE CLAUSE IN SUB- SEC. (1) STATING THAT THE PROVISIONS OF SEC.40A W OULD HAVE EFFECT NOTWITHSTANDING ANY THING CONTRARY CONTAINED IN ANY OTHER PROVISI ONS OF THE I.T. ACT. THIS MEANS 10 ITA NO. 3556 3558 3655 & 3656-AHD-2008 THAT ANY EXPENDITURE MADE BY ANY PERSON OR ENTITY TO ANY PERSON OR ENTITY AS LISTED UNDER CLAUSE-(B) TO SUB-SEC!(2) WHICH IS EXCESSIVE OR UNREASONABLE IN THE OPINION OF THE AG SUCH EXPENDITURE WHICH IS CONS IDERED AS EXCESSIVE OR UNREA- SONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. THE ASSESSEE'S CASE WAS SQUARELY COVERED UNDER SUB-CLAUSE (I) OF CLAUSE-(B) OF SUB -SEC.(2) BOTH THE RECIPIENTS OF THE PAYMENTS MADE BY THE ASSESSEE WERE CLOSE RELA TIVES BEING THE ASSESSEE'S BROTHER AND HIS SISTER-IN-LAW. QUITE CLEARLY THE SE PERSONS WERE OVERQUALIFIED FOR ANY JOB WITH THE ASSESSEE'S PROPR IETORSHIP FIRM ESPECIALLY WHEN WE CONSIDER THE FACT THAT THE ASSESSEE HAD APPOINTED AN ACCOUNTANT WHO WAS PAID A SALARY OF R S .59 800 AND TWO OTHER INDIVIDUALS WHO WERE PAID SALARIES OF RS 42 000 AND 32 000. GIVEN THE NATUR E OF THE ASSESSEE'S BUSINESS THERE WOULD NOT HAVE BEEN ANY REQUIREMENT FOR ANY SERV ICE FROM B.E AND A MBA IT HAS BEEN CLAIMED THAT SHRI SANJAY MAH ESHWARI THE ELDER BROTHER LOOKED AFTER IMPORTS OF YARN. HOWEVER NO EXPENDITURE HAS BEEN CLAIMED ON ACCOUNT OF CUSTOM DUTIES OR FREIGHT CARTAGE LOADING-UNLOAD ING ETC. ETC THE EXPENDITURES WHICH ARE USUALLY ASSOCIATED WITH IMPORTS. THE C LAIM OF THE ASSESSEE THEREFORE IS CLEARLY BOGUS AND SEEMS TO HAVE BEEN MADE FOR TH E SOLE PURPOSE OF DIVERTING TAX- ABLE INCOME. GIVEN SUCH FACTS I HAVE NO OTHER OPTION BUT TO SUSTAIN THE ACTION OF THE AO AND CONFIRM THE ADDITION OF RS.3 30 00 0/-. 13. AGGRIEVED WITH THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 14. AT THE TIME OF HEARING BEFORE US COUNSEL OF TH E ASSESSEE RELYING ON THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW CONTENDED THAT S ALARY PAID TO BOTH THE RELATIVES LOOKING TO THE EDUCATIONAL QUALIFICATION AND SERVICES RENDERED BY BOTH OF THEM IS FAIR AND REASONABLE. HENCE DISALLOWANCE TO THE EXTENT OF RS.3 30 000/- BEING 5 0% BE DELETED. 15. ON THE OTHER HAND SHRI K.MADHUSUDAN VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LD. D.R. P OINTED OUT THAT THERE IS HARDLY ANY REQUIREMENT OF SERVICES FROM B.E. AND M.B.A. IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE. THIS CLEARLY INDICATES THAT HUGE SALARY PAID TO THE M WAS DUE TO SOME OTHER CONSIDERATION AND 50% ALLOWED BY THE ASSESSING OFFICER IS FAIR AND REASON ABLE. THEREFORE THE VIEW TAKEN BY BOTH THE DEPARTMENTAL AUTHORITIES BELOW BE UPHELD. 16. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMMEDIAT ELY PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS 11 ITA NO. 3556 3558 3655 & 3656-AHD-2008 PAID SALARY AMOUNTING TO RS.2 40 000/- TO SHRI SANJ AY MAHESWARI AND RS.1 80 000/- TO MRS. DIPTI MAHESWARI. IT WAS ALLOWED BY THE ASSESSING OFFICER. THE SALARY PAID TO THESE TWO EMPLOYEES IN THE ASSESSMENT YEAR UNDER APPEAL IS RS.4 08 000/- A ND RS.4 52 000/- RESPECTIVELY. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNE D ORDER HAS ALLOWED 50% OF SALARY PAID TO THESE TWO EMPLOYEES. LOOKING TO THE FACTS OF THE CASE WE ARE OF THE VIEW THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS FAIR AND REASONABLE. WE THEREFORE DECLINE TO INTERFERE. THIS GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 17. FACTS RELATING TO CONTROVERSY INVOLVED IN GROUN D NOS. 4 AND 5 OF THE REVENUES APPEAL ARE THAT THE ASSESSEE PAID BROKERAGE OF RS.90 65 688/- TO SEVEN PARTIES FOR PROMOTION OF SALES. THE RELEVANT DETAILS OF COMMISSION PAID TO FIVE PARTIES ARE MENTIONED BY THE ASSESSING OFFICER AT PAGE NO.15 OF THE ASSESSMENT ORDER. THE ASSESSING O FFICER ISSUED SHOWCAUSE NOTICE DATED 22.12.2006 TO THE ASSESSEE ASKING HIM TO JUSTIFY TH E COMMISSION. THE ASSESSEE FURNISHED WRITTEN EXPLANATION VIDE LETTER DATED 26.12.2006 WHICH IS R EPRODUCED BY THE ASSESSING OFFICER AT PAGE NOS. 16 TO 18 OF THE ASSESSMENT ORDER. THE ASSESSEE FURNISHED DETAILS OF BROKERAGE ALONG WITH CONFIRMATION CREDIT NOTE STATEMENT OF SALES MADE THROUGH BROKER LEDGER ACCOUNT AND BANK STATEMENT IN RESPECT OF EACH PARTY TO WHOM BROKERAG E WAS PAID. THE RELEVANT AGREEMENT WAS ALSO FURNISHED WHEREVER SAME WAS OFFERED. THESE DETAILS ARE AVAILABLE AT PAGE NOS. 185 TO 240 AND 254 TO 266 OF THE PAPER BOOK. NOT SATISFIED WITH TH E EXPLANATION OF THE ASSESSEE ON THE BASIS OF OBSERVATIONS AT PAGE NOS. 19 TO 24 OF THE ASSESSMEN T ORDER THE ASSESSING OFFICER DISALLOWED RS.75 54 740/- OUT OF BROKERAGE OF RS.90 65 688/- P AID TO SEVEN PARTIES @3% ON THE GROUND THAT SAME IS HIGHLY EXCESSIVE AND UNREASONABLE. 18. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE FOR THE DETAILED REASONS G IVEN AT PARA NO.11 OF THE IMPUGNED ORDER. 19. AGGRIEVED WITH THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) THE REVENUE IS IN APPEAL BEFORE US. 12 ITA NO. 3556 3558 3655 & 3656-AHD-2008 20. AT THE TIME OF HEARING THE LD. D.R. RELYING O N THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER CONTENDED THAT DIS ALLOWANCE WAS RIGHTLY MADE AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIE D IN DELETING THE SAME. 21. ON THE OTHER HAND COUNSEL OF THE ASSESSEE CONT ENDED THAT IN THE ASSESSMENT ORDER ALSO THE BROKERAGE OF RS.25 00 774/- WAS PAID ON SALES O F RS.3 95 02 878/- WHICH IN TERMS OF PERCENTAGE COMES TO 6.33%. AS AGAINST THIS IN THE ASSESSMENT YEAR UNDER APPEAL A BROKERAGE OF RS.90 65 688/- WAS PAID ON SALES OF RS.34 98 13 407 /- WHICH WORKS OUT TO 2.59%. THUS RELATIVELY THE BROKERAGE PAID IN THE ASSESSMENT YE AR UNDER APPEAL IS LESS DESPITE THE FACT THAT SALES INCREASED BY ALMOST TEN TIMES. IT WAS FURTHER SUBMITTED THAT THERE WAS NO BAD DEBTS BECAUSE THE SERVICES RENDERED BY THE BROKERS WERE EFFICIENT . IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER ISSUED LETTER UNDER SECTION 133(6) OF THE I .T. ACT TO ALL THE BROKERS AND MOST OF THEM HAVE COMPLIED WITH. THIS FACT WAS NOT MENTIONED BY THE A SSESSING OFFICER IN THE ASSESSMENT ORDER. 21.1 WITH REGARD TO BROKERAGE PAID TO M/S. POLYLACE INDIA PVT. LTD. AMOUNTING TO RS.60 03 844/- IT WAS CONTENDED THAT THE ASSESSEE COMPANY HAS CONFIRMED THE PAYMENT. THE NAME OF THE PARTIES TRANSACTED THROUGH THEM AND AMO UNT OF TRANSACTION HAVE BEEN SUBMITTED. IT WAS FURTHER SUBMITTED THAT THE REGISTERED OFFICE OF THE COMPANY POLYLACE INDIA LTD. IS IN DELHI BUT SAID COMPANY IS RENDERING SERVICES ALL OVER IND IA. THE PAYMENT TO POLYLACE IS SUPPORTED BY AN AGREEMENT. IN THE AGREEMENT IT WAS AGREED TO GI VE 1% BROKERAGE AND 2% AS GUARANTEE CONSIDERATION FOR SALES CONSIDERATION AND IN CASE O F BAD DEBTS COMPANY WAS RESPONSIBLE TO PAY THE SAME TO MAKE GOOD THE LOSS FOR BAD DEBTS. ON TH IS BASIS IT WAS SUBMITTED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 22. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE IMPUGNED ORDER THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE OF COMMISSION FOR THE DETAILED REASON GIVEN IN PARA 11 WHICH IS REPRODUCED HEREUNDER: 11. I HAVE CAREFULLY CONSIDERED BOTH THE POSITION S. I HAVE ALSO EXAMINED THE ASSESSMENT RECORDS ON THIS ISSUE WHAT IS CLEAR FR OM THE ASSESSMENT ORDER IS THAT THE AO HAD ACCEPTED THE GENUINENESS OF THE BROKERAG E AND COMMISSION PAYMENTS TOTALLING RS.90 65 688. WHATEVER MAY HAVE BEEN HIS OBSERVATIONS AND ARGUMENTS 13 ITA NO. 3556 3558 3655 & 3656-AHD-2008 ON THIS ISSUE WHILE CONCLUDING WHAT REMAINED WAS THE RATE OF COMMISSION PAID BY THE ASSESSEE BEING IN EXCESS OF THE MARKET RATES . WHILE THE ASSESSEE HAD PAID AT THE RATE OF 3% THE MARKET RATE ACCORDING TO TH E A.O VARIED FROM 0.25 TO 0.50% OF THE TOTAL TURNOVER. UNFORTUNATELY I FIND THAT THE AO DID NOT BACK-UP THIS OBSERVATION OF HIS WITH ANY EVIDENCE. THUS HE FAILED TO DISCLOSE THE SOURCE FROM WHICH HE OBTAINED THE MARKET RATE OR THE TECH NICAL ADVICE TAKEN BY HIM (PAGE- 24). WITHOUT ANY EVIDENCE ON RECORD TO SHOW WHAT THE MARKET RATE WAS IT WAS UNFAIR AND UNJUST ON THE PART OF THE AO TO APPL Y THE RATE OF 0.50% ESPECIALLY WHEN THE ASSESSEE HAD PRODUCED COPIES OF AG REEMENTS WITH SOME OF THE BROKERS. SECONDLY WITH THE COMMISSION AND BROK ERAGE PAID BY THE ASSESSEE WAS HIGHLY EXCESSIVE WAS BECAUSE THE ASSESSEE HAD F AILED TO ESTABLISH THAT THE BROKERAGE OR THE SERVICES RENDERED BY THE BROKERS H AD RESULTED IN INCREASE IN SALES AND PROMOTION OF THE ASSESSEE'S BUSINESS. T HUS ACCORDING TO ME WAS VERY UNFAIR SINCE WITH THE HELP OF FACTS AND FIGUR ES WHICH THE AO HAS HIMSELF REPRODUCED ON PAGE -17 OF THE ASSESSMENT ORDER IT WAS CLEARLY SHOWN THAT THE ASSESSEE'S TURNOVER HAD INCREASED DURING THE YEAR T O RS.34.98 CRORES FROM RS.3.95 CRORES IN THE IMMEDIATELY PRECEDING YEAR WHICH MEANT AN INCREASE OF MORE THAN TEN TIMES. ON THE OTHER HAND THE COMMIS SION AND BROKERAGE PAYMENTS HAD INCREASED BY ONLY 3.5 TIMES IN ABSOLUT E TERMS WHILE AS A PERCENTAGE TO THE TOTAL TURNOVER IT WAS ONLY 2.59% AS COMPARED TO 6.33% IN PRECEDING YEAR. OTHER EXPENSES SUCH AS SALARY TELE PHONE AND CONVEYANCE HAD INCREASED ONLY MARGINALLY. THESE FACTS AND FIGURES CLEARLY PROVIDED EVIDENCE OF THE SERVICE RENDERED BY THE BROKERS ESPECIALLY WHE N IT IS CONSIDERED THAT THERE WAS NO BAD DEBT. THE ASSESSEE HAD ALSO PROVIDED DET AILS OF THE PARTIES TO WHOM SALES WERE AFFECTED THROUGH THE BROKERS AS ALSO TH E CALCULATION OF THE BROKERAGE PAYABLE ON EACH TRANSACTION. THE NAMES AND ADDRESSE S OF THE BROKERS WERE PROVIDED IN THE VERY BEGINNING. IT IS SEEN FROM THE SUBMISSION OF THE AR THAT THE AO HAD ISSUED LETTERS U/S.133(6) OF THE IT ACT TO A LL THE BROKERS AND MOST OF THEM HAD BEEN COMPLIED WITH. UNFORTUNATELY THE AO FAILE D TO MAKE ANY MENTION OF THE ENQUIRES MADE BY HIM AND THE RESULT OF SUCH ENQUIR ES. IN ANY CASE IT IS PERHAPS BECAUSE OF SUCH ENQUIRIES AND THE CONFIRMATIONS FUR NISHED BY THE BROKERS THAT THE AO WAS FORCED TO ACCEPT THE GENUINENESS OF THE PAYM ENTS MADE AND THEREFORE HAD TO CONFINE HIMSELF ONLY TO THE RATE AT WHICH TH E PAYMENTS WERE MADE. HOWEVER AS HAS ALREADY BEEN SEEN FIRSTLV THERE WA S NO BASIS FOR THE AO TO ESTIMATE THE BROKERAGE PAYMENTS AT 0.50% AND SECO NDLY THE PAYMENTS WERE FULLY JUSTIFIED IN VIEW OF THE DRASTIC INCREASE IN THE ASSESSEE'S TURNOVER DURING THE YEAR AND ONLY A MARGINAL INCREASE IN BROKERAGE AND COMMISSION EXPENSES PAID. WHEN ALL THESE FACTS ARE TAKEN INTO CONSIDERATION IT BECOMES ABSOLUTELY CLEAR THAT THERE WAS SIMPLY NO BASIS FOR THE AO TO MAKE A NY DISALLOWANCE OUT OF THE BROKERAGE AND COMMISSION EXPENSES. THE DISALLOWANCE OF THE SUM OF RS. 75 54 740 WILL THEREFORE STAND DELETED. 23. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN OUR OPINION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT 14 ITA NO. 3556 3558 3655 & 3656-AHD-2008 REASON IN DELETING THE ADDITION TO THE EXTENT OF RS .75 54 740/- MADE BY THE ASSESSING OFFICER AND CONFIRMED THE ADDITION OF RS.15 10 948/- (RS.90 65 688/- MINUS RS.75 54 740/-) ON ACCOUNT OF BROKERAGE EXPENSES. WE THEREFORE DECLINE TO INTER FERE. HENCE BOTH THE GROUNDS OF APPEAL OF THE REVENUE AS WELL AS THE ASSESSEE ARE REJECTED. 24. NOW WE TAKE UP THE CROSS-APPEALS FOR THE ASSESS MENT YEAR 2005-06. ITA NO. 3558/AHD./08 : ASSESSMENT YEAR 2005-06 25 THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT FOR THE ASSESSMENT YEAR 2005 -06 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY CONFIRM ING THE ACTION OF THE ASSESSING OFFICER IN SUSTAINING THE ADDITION OF RS.4 53 070 /- ON ACCOUNT OF ALLEGED BROKERAGE /COMMISSION PAID. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY CONFIRM ING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE SUM OF RS.79 358/- BEI NG 10% OF TOTAL EXPENSES ON ACCOUNT OF PERSONAL USE INVOLVED IN EXPENSES CLAI MED FOR TELEPHONE VEHICLE AND DEPRECIATION ON MOTOR CAR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY CONFIRM ING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PROPORTIONATE INTEREST PAID/PAYABLE OUT OF TOTAL SUM OF RS.5 86 907/- ON ACCOUNT OF UNSECURED LOANS OF RS .55 20 000/- DISALLOWED IN IMMEDIATELY PRECEDING YEAR BY ASSESSING OFFICER A ND PARTLY CONFIRMED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS) VIDE THE SEPARATE APPELLATE PASSED BY LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) IN THE MATTER U/S 154 OF THE I.T.ACT. ITA NO. 3656/AHD./08 : ASSESSMENT YEAR 2005-06 25.1 THIS APPEAL BY THE REVENUE IS AGAINST THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II SURAT FOR THE ASSESSMENT YEAR 2005 -06 WHEREIN THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: [1] ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A)-II SURAT HAS ERRED IN HOLDING THAT AO HA D WITHOUT ANY BASE ADOPTED THE RATE OF 0.50% COMMISSION AS AGAINST 3% CLAIME D BY THE ASSESSEE IGNORING 15 ITA NO. 3556 3558 3655 & 3656-AHD-2008 THE FACT THAT THE GENERAL RATE OF COMMISSION IN T HE LINE OF THE BUSINESS OF THE ASSESSEE IS RANGING FROM 0 25% TO 0.50% [2] ON THE FACT AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A)II SURAT HAS ERRED IN IGNORING THE MATERIA L FACT THAT THE TURNOVER OF THE ASSESSEE IN YEAR UNDER CONSIDERATION HAS NOT INCR EASED AS COMPARED TO LAST YEAR BUT HAS DECREASED TO RA.35.20 CRORES FROM RS .38.47 CRORES SHOWN IN THE LAST YEAR. [3] ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-II SURAT HAS ERRED IN DELETING THE ADDIT ION MADE BY ASSESSING OFFICER OF RS.29 37 197/- ON ACCOUNT OF DISALLOWANCE OF C OMMISSION PAYMENT. 26. THE FACTS RELATING TO CONTROVERSY INVOLVED IN G ROUND NO. 1 OF THE ASSESSEES APPEAL AND GROUND NOS. 1 TO 3 OF THE REVENUES APPEAL ARE THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS DISALLOWED RS.33 90 267/- OUT OF COMMIS SION PAID. THE REASONING GIVEN BY THE ASSESSING OFFICER IS THAT IN THE IMMEDIATELY PRECED ING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2004-05 THE CLAIM OF BROKERAGE WAS RESTRICTED TO 0 .50% AND REMAINING WAS DISALLOWED IN THE ABSENCE OF PROPER JUSTIFICATION BY THE ASSESSEE. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR THE DETAIL ED REASONS GIVEN IN PARA 6.1 TOOK THE VIEW THAT COMMISSION PAYMENT TO SHRI SANJAY MAHESWARI AM OUNTING TO RS.4 53 070/- IS ABSOLUTELY BOGUS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) ACCORDINGLY CONFIRMED THE DISALLOWANCE OF RS.4 53 070/- BEING COMMISSION PAID TO SHRI SANJAY MAHESWARI AND DELETED THE BALANCE ADDITION AMOUNTING TO RS.29 37 197/- PAID T O OTHER PARTIES. 27. AGGRIEVED WITH THIS BOTH THE SIDES ARE IN APPE AL BEFORE US. 28. WE HAVE HEARD BOTH THE SIDES. IT IS PERTINENT T O NOTE THAT IN THE ASSESSMENT YEAR 2004-05 SHRI SANJAY MAHESWARI WAS A SALARIED EMPLOYEE. IN T HAT YEAR THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED 50% OF SALARY PAID TO S HRI SANJAY MAHESWARI WHICH HAS BEEN CONFIRMED BY US. IT IS PERTINENT TO NOTE THAT SHRI SANJAY MAHESWARI HAS WORKED AS HE HAS NO OTHER SOURCE OF INCOME. WE THEREFORE FOLLOWING THE DECI SION FOR THE ASSESSMENT YEAR 2004-05 ALLOW 50% OF COMMISSION PAID TO SHRI MAHESWARI FOR THE AS SESSMENT YEAR UNDER APPEAL. HENCE WE DIRECT THE ASSESSING OFFICER TO ALLOW RS.2 26 535/- BEING 50% OF RS.4 53 070/- TO SHRI SANJAY MAHESWARI. THEREFORE GROUND NO.1 OF ASSESSEES APP EAL IS PARTLY ALLOWED. 16 ITA NO. 3556 3558 3655 & 3656-AHD-2008 28.1 THE COMMISSION PAID TO OTHERS WAS DISALLOWED I N THE ASSESSMENT YEAR 2004-05 WHICH WAS ALLOWED BY THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS). ON REVENUES APPEAL THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) IN THIS REGARD WAS UPHELD BY US ( SUPRA ). WE THEREFORE FOLLOWING OUR ORDER FOR THE ASSES SMENT YEAR 2004-05 UPHOLD THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHE REBY HE DELETED THE DISALLOWANCE OF COMMISSION AMOUNTING TO RS.29 37 197/-. THE APPEAL OF REVENUE FOR THE A.Y. 2005-06 IS ACCORDINGLY DISMISSED. 29. IN REGARD TO THE GROUND NO.2 OF ASSESSEES APPE AL FOR THE ASSESSMENT YEAR 2005-06 IN THE ASSESSMENT ORDER THE ASSESSING OFFICER DISALLOWED 10% OF EXPENSES VIDE PARA 15 OF PAGE 10 OF THE ASSESSMENT ORDER. ON APPEAL IN THE IMPUGNED OR DER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE SAID DISALLOWANCE. 30. AFTER HEARING BOTH THE SIDES WE ARE OF THE VIE W THAT VEHICLES AND TELEPHONE EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY USED BY THE ASSESSE E FOR BUSINESS PURPOSES. THE ASSESSEE IS AN INDIVIDUAL AND POSSIBILITY OF PERSONAL USAGE CANNOT BE RULED OUT. 10% OF VEHICLE AND TELEPHONE EXPENSES DISALLOWED BY THE ASSESSING OFFICER IS FAI R AND REASONABLE. WE THEREFORE DECLINE TO INTERFERE. HENCE THIS GROUND OF THE ASSESSEES APP EAL FOR THE ASSESSMENT YEAR 2005-06 IS REJECTED. 31. APROPOS THE GROUND NO.3. IN RESPECT OF DISALLOW ANCE OF INTEREST WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CONSEQUENTIAL RELIEF. I N THE ASSESSMENT YEAR 2004-05 PART OF THE ADDITION MADE UNDER SECTION 68 HAS BEEN UPHELD. PAR T IS DELETED AND PARTLY IT IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO ALLOW INTEREST PAID TO CASH CREDITORS WHICH ARE TREATED AS GENUINE AFTER GIVING APPEAL E FFECT TO THIS ORDER. TO SUM UP THE ASSESSING OFFICER IS DIRECTED TO ALLOW CONSEQUENTIAL RELIEF T O THE ASSESSEE. 32. IN THE RESULT BOTH THE APPEALS FILED BY THE AS SESSEE AND THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004-05 ARE PARTLY ALLOWED AND THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2005-06 IS DISMISSED. THE ORDER PRONOUNCED IN THE COURT ON 28.02.2011. SD/- SD/- (G.D.AGRAWAL) (T.K. SHARMA) VICE- PRESIDENT JUDICIAL MEMBER DATED : 28/02/2011 17 ITA NO. 3556 3558 3655 & 3656-AHD-2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED 4) CIT CONCERNED 5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD TALUKDAR/SR.P.S.