The ACIT, Circle-6,, Surat v. Koyal Textile Mills, Surat

ITA 378/AHD/2008 | 2004-2005
Pronouncement Date: 18-03-2011 | Result: Dismissed

Appeal Details

RSA Number 37820514 RSA 2008
Assessee PAN AAEFK5758M
Bench Ahmedabad
Appeal Number ITA 378/AHD/2008
Duration Of Justice 3 year(s) 1 month(s) 16 day(s)
Appellant The ACIT, Circle-6,, Surat
Respondent Koyal Textile Mills, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 18-03-2011
Date Of Final Hearing 03-03-2011
Next Hearing Date 03-03-2011
Assessment Year 2004-2005
Appeal Filed On 01-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI D K TYAGI JM & SHRI A N PAHUJA AM ITA NO.378/AHD/2008 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-6 ROOM NO. 623 AAYAKAR BHAVAN MAJURA GATE SURAT V/S M/S KOYAL TEXTILE MILLS 601 LAXMI VILAS APARTMENT B/H KOTAK HOUSE GHOD DOD ROAD SURAT PAN: AAEFK 5758 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI P R GHOSH DR ASSESSEE BY:- SHRI J P SHAH AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 30- 11-2007 OF THE LD. CIT(APPEALS)-IV SURAT FOR THE ASSESSMENT YEAR (AY) 2004-05 RAISES THE FOLLOWING GROUNDS:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O N ACCOUNT OF JOB WORK RECEIPTS OF RS.13 02 591/- MADE BY THE AO. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT FOR RS.24 29 887/- MADE BY THE AO. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE DISALLO WANCE TO RS.50 000/- IN RESPECT OF WAGES AND SALARY INSTEAD OF RS.7 56 8 07/- MADE BY THE AO. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN RESTRICTING RS.40 000/- OF UNVERIFIABLE EXPENSES INSTEAD OF RS.2 00 517/- FOR DISALLOWANCE MADE BY THE AO. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 6 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LE ARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. IT A NO.378/AHD/08 2 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOME FILED ON 27- 10-2004 BY THE ASSESSEE DYEING AND PRINTING FABRIC S WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE ACT ON 27- 10-2005.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE AS SESSEE HAD NOT SHOWN ANY PROCESSING CHARGES IN THE MONTH OF APRIL 2003 EVEN THOUGH EXPENSES WERE INCURRED TOWARDS COLOUR CHEMIC ALS LABOUR CHARGES POWER & DIESEL CHARGES ETC. BESIDES IN T HE MONTH OF OCTOBER 2003 & FEBRUARY 2004 THE ASSESSEE PROCESSE D 673345 METRES AND 696435 METRES OF CLOTH RESPECTIVELY WHIL E EXPENSES VARIED AS DETAILED HEREUNDER: OCTOBER 2003 FEBRUARY 2004 (IN R S.) LABOUR CHARGES 240564 2 76042 COLOUR CONSUMPTION 2080166 206552 1 POWER & FUEL 548970 970952 SIMILARLY IN AUGUST & DECEMBER 2003 702674 METERS & 901728 METRES OF CLOTH WAS PROCESSED WHILE EXPENSES VARI ED AS DETAILED HEREUNDER: AUGUST 2003 D ECEMBER.2003 (IN R S.) LABOUR CHARGES 248000 240 500 COLOUR CONSUMPTION 1191113 1471603 POWER & FUEL 87891 860286 2.1 BESIDES THE ASSESSEE DID NOT PRODUCE PAN AN D CONFIRMATIONS OF CREDITORS AND CERTAIN EXPENSES WERE NOT VERIFIAB LE AS DETAILED ON PAGE 4 TO 7 OF THE ASSESSMENT ORDER. IN THE LIGHT O F THESE FACTS IN RESPONSE TO A SHOWCAUSE NOTICE THE ASSESSEE REPLIE D THAT NIL PROCESSING CHARGES WERE SHOWN IN APRIL 2003 DUE TO DRASTIC CHANGES IN EXCISE ON PROCESSING OF FABRICS AND UNIT WAS ALM OST CLOSE IN THAT IT A NO.378/AHD/08 3 PERIOD. THE EXPENSES WERE INCURRED ONLY TOWARDS SEM I FINISHED CLOTH WHILE FLUCTUATION IN POWER EXPENSES WAS DUE T O PURCHASE OF A FURNACE. HOWEVER THE AO DID NOT ACCEPT THE SUBMISS IONS OF THE ASSESSEE SINCE THE CONTENTION OF THE ASSESSEE THAT ONLY SEMI FINISHED CLOTH WAS MANUFACTURED WAS NOT VERIFIABLE WHILE THE ASSESSEE DID NOT MAINTAIN SEPARATE ACCOUNTS FOR DYE ING AND PRINTING NOR FURNISHED SEPARATE DETAILS OF CLOTH DYED AND TH AT OF DYED AND PRINTED. ACCORDINGLY THE AO REJECTED THE BOOK RESU LTS AND ADDED AN AMOUNT OF RS. 13 02 591/- TOWARDS PROCESSING CHARGE S FOR THE MONTH OF APRIL 2003/- BY APPLYING THE AVERAGE PROF IT RATE SHOWN BY THE FIRM FOR SUBSEQUENT 11 MONTHS @ 32.18% AS PER F OLLOWING WORKING:- KOYAL TEXTILE MILLS ESTIMATED JOB CHARGES RECEIVED MONTH CLOTH PROCESSED MTRS. LABOUR CHARGES COLOUR CHEMICAL POWER & FUEL TOTAL EXPENSES JOB CHARGES/ EXCISE APRIL 0 64940 314427 606100 985467 1302591* MAY 367459 215058 371043 589551 1543111 2725285 JUNE 397111 224041 1977687 669370 3268209 3153349 JULY 549376 239534 1731992 459120 2980022 3524755 AUGUST 702674 248000 1191113 379891 3021673 4113615 SEPT. 727626 252500 2962725 656187 4599038 4426900 OCT. 673346 240564 2080166 548970 3543045 3005069 NOV. 767068 245000 1661601 658295 3331964 3593379 DECE. 901728 240500 1471608 860285 3474122 3546981 JAN. 574602 274000 2162603 959362 3970567 3546879 FEB. 696435 276042 2065522 970952 4008950 3962336 MARCH 680819 265450 1441615 520897 2908781 3541112 TOTAL FOR THE MONTHS OF MAY 2003 TO MARCH 2004 36649487 40442251 AVERAGE PROFITS BASED ON UN-REJECTED RESULTS OF 11 MONTHS 32.18% *FIGURE FOR THE MONTH OF APRIL IS BASED ON ESTIMATE S AS THE NIL INCOME SHOWN HAS BEEN REJECTED. 3. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- BEFORE ME THE LD. AR SUBMITTED THAT THE VERY BASI S FOR REJECTING THE BOOK RESULTS WAS INCORRECT SINCE THE AO ON ONE HAND ALL EGED DISPARITY IN MONTHLY PROFITABILITY IN SIX MONTHS OUT OF THE YEAR AND ON THE OTHER HAND HE HIMSELF COMPUTED THE AVERAGE PROFITABILITY OF IT MO NTHS OF THE YEAR AT 32.18% AND TAKING THE SAID RATE AS A BENCHMARK APP LIED THE SAME FOR THE IT A NO.378/AHD/08 4 MONTH OF APRIL 2003. THIS MEANT THAT NO ADDITION W AS MADE FOR ALLEGED DISPARITY IN MONTHLY PROFITABILITY AND THE AVERAGE THEREOF WAS CONSIDERED AS A BENCHMARK WHICH COULD NOT BE A GROUND FOR REJECTI NG THE BOOK RESULTS. IT WAS SUBMITTED THAT NIL JOB RECEIPTS IN THE MONTH OF APRIL 2003 WAS BECAUSE OF THE STRIKE IN THE WEAVING INDUSTRY FOR TWO MONTH S WHICH RESULTED IN NON- RECEIPT OF GREY AND ZERO PROCESSING DURING THE MONT H. HOWEVER SINCE STOCK OF GREY WAS LYING IN THE MILL SOME IN HOUSE P ROCESSING WAS DONE BUT NO DISPATCHES COULD BE MADE DUE TO THE STRIKE I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS. I AM IN AGREEMENT WITH THE APPELLANT THAT THE AO HAS INVOKE D THE PROVISIONS OF SECTION 145 OF THE ACT WITHOUT POINTING OUT ANY DEF ECTS IN THE BOOKS OF ACCOUNTS AND HAS SIMPLY ESTIMATED JOB RECEIPT IN TH E MONTH OF APRIL. IT APPEARS THAT THE AO WAS NOT SURE OF THE LINE OF INV ESTIGATION TO BE ADOPTED. ON ONE HAND-HE POINTED OUT THE DISCREPANCY OF JOB R ECEIPTS IN DIFFERENT MONTHS WHEN THE SAME METERS OF CLOTHS WAS PROCESSED WHILE ON THE OTHER HAND HE HAS AGGREGATED THE JOB RECEIPTS IN 11 MONTH S OF THE YEAR AND HAS TAKEN THE AVERAGE OF THE JOB RECEIPTS AS THE BENCHM ARK FOR ESTIMATING RECEIPTS IN THE MONTH OF APRIL 2003. THIS IS ONLY A HYPOTHETICAL ESTIMATE WITHOUT APPRECIATING THE FACT THAT THERE WAS A STRI KE IN THE TEXTILE INDUSTRY AND SINCE THERE WOULD BE NO INWARD RECEIPT OF GREY CLOTH THE PROCESSING CHARGES OBVIOUSLY WOULD BE NIL. THE ADDITION MADE P URELY ON ESTIMATE BASIS AND CONJECTURES CANNOT BE SUSTAINED AND ADDIT ION ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT THE LD. CIT(A) DID NOT RECORD HIS FINDINGS ON THE FACTS POINTED OUT BY THE AO NOR ANALYSED THE REASONS GIVEN BY HIM. ON THE OTHER HAND THE LE ARNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF TH E LEARNED CIT(A). 5.. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. INDISPUTABLY THE ASSESSEE IS MAINTAINING THE BOOK S OF ACCOUNTS AND NO DEFECTS HAVE BEEN POINTED OUT BY THE AO IN THE PURCHASES OR SALES AS POINTED OUT BY THE LD. CIT(A). THE LD. DR APPEARING BEFORE US THOUGH ARGUED THAT THE LD. CIT(A) DID NOT ADDRESS THE ISSUES RAISED BY THE AO HE DID NOT POINT OUT ANY DEFECTS AT ALL IN THE BOOKS MAINTAINED BY THE ASSESSEE. AS MENTIONED BY THE LD. CIT(A) THOUGH THE AO POINTED OUT VARIATION IN JOB RECEIPTS VIS-A -VIS LABOUR CHARGES COLOUR CONSUMPTION AND CONSUMPTION OF POWER & FUEL ULTIMA TELY THE AO ESTIMATED JOB RECEIPTS ONLY FOR THE MONTH OF APRIL 2003 WITHOUT APPRECIATING THE IT A NO.378/AHD/08 5 FACT THAT THERE WAS A STRIKE IN THE TEXTILE INDUST RY IN THAT PERIOD.. THERE IS NO FINDING OR OPINION EITHER THAT THE RECORDS WERE INC ORRECT AND INCOMPLETE OR THAT THE METHOD APPLIED WAS SUCH THAT THE INCOME COULD NOT B E DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE . IT IS DIFFICULT TO CATALOGUE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH M AY RENDER REJECTION OF ACCOUNTS ON THE GROUND THAT ACCOUNTS ARE NOT COMPLE TE AND FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. THE LD. DR DID N OT REFER US TO ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECOR DED BY THE LD. CIT(A). HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMITBHAI GUNWANTBHAI 129 ITR 573 HELD THAT IF THERE WAS NO CHALLENGE TO THE TRANSACT IONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. SECONDLY EVEN IF FOR S OME REASON THE BOOKS ARE REJECTED IT IS NOT OPEN TO THE AO TO MAKE ANY ADDIT ION ON ESTIMATE BASIS OR ON PURE GUESS WORK. THE BURDEN OF SHOWING THAT THE APP ARENT STATE OF AFFAIRS IS NOT THE REAL ONE IS VERY HEAVY ON THE DEPARTMENT [BEDI & CO. PVT. LTD. VS. CIT 144 ITR 352(KARN) AFFIRMED BY HONBLE SUPREME COURT IN 230 ITR 580]. NO MATERIAL HAS BEEN PLACED BEFORE US TO DOUBT THE NATURE OF T HE TRANSACTIONS RECORDED IN THE BOOKS AND AS MENTIONED BY THE LD. CIT(A) NO S PECIFIC DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAV E BEEN POINTED OUT NOR WAS ANY MATERIAL BROUGHT TO OUR NOTICE TO ESTABLISH THA T PURCHASES WERE INFLATED OR RECEIPTS SUPPRESSED. IN THESE CIRCUMSTANCES THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT [ VIKRAM PLASTICS 239 ITR 161(GUJ) ]AND ESTIMATING THE PROFITS. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US FOR TAKING A DIFFE RENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO. 1 IN THE APPEAL IS DISMISSED. 6. GROUND NO.2 IN THE APPEAL RELATES TO ADDITION OF UNEXPLAINED CASH CREDIT AMOUNTING TO RS.24 29 887/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE OBTAINED CASH CREDITS OF DIFFERENT AMOUNTS FROM A LARGE NUMB ER OF PERSONS INCLUDING FOLLOWING CONCERNS/ENTITIES:- IT A NO.378/AHD/08 6 NAME OF PARTY AMOUNT OUTSTANDING AT THE END OF CURRENT YEAR ASSOCIATED CHEMICAL CORPN. 119704 ANJALI CHEMICALS 129250 ANKIT ENTERPRISES 340830 ANUBHA PLY WEAVERS PVT. LTD. 459727 ANUPAM TRADERS 88712 J-PRINTEX POLYCHEM 104280 UNLITE CHEM. CORPN. 82250 PROMPT DYECHEM 200000 POOJAN MARKETING 118862 RAMESH CHEMICALS 50300 REMIK TRADING CORPN. PVT. LTD. 195540 SHAH CHUNILAL D 68506 SHREE SATI CHEMICALS 97370 TRACKON 160123 UNIVERSAL IMPEX 102586 VISHAL LAB. PVT. LTD. 57847 VARDHAMAN MARKETING 54000 TOTAL 24 29 887 SINCE THE ASSESSEE DID NOT ESTABLISH IDENTITY & CR EDITWORTHINESS OF THE CREDITORS NOR GENUINENESS OF THE TRANSACTIONS D ESPITE SUFFICIENT OPPORTUNITY PROVIDED VIDE NOTICE DATED 9/06/2006 & 6.9.2006 U/S 142(1) OF THE ACT ORDER SHEET ENTRY DATED 14/09/20 06 AND SHOW CAUSE NOTICE DATED 6/12/2006 WHILE FEW CONFIRMATI ONS FURNISHED WERE FOUND TO BE INCOMPLETE LACKED FULL ADDRESS AS WELL AS THE CORRECT PAN AND THE ASSESSEE DID NOT PRODUCE AN I OTA OF EVIDENCE IN FORM OF ANY BILLS/VOUCHERS OR ANY AGREEMENT WITH THE CREDITORS RELYING UPON DECISIONS IN ROSHAN DI HAITI V. CIT [ 1977] 107 ITR 938 (SC)/ KALE KHAN MOHAMMAD HANIF V. CIT [1963] 50 ITR 1 (SC ) KAMAL MOTORS V. CIT [2003] 131 TAXMAN 155 (RAJ.) ADDL. CIT V. BAHRI BRO S. (P.) LTD. [1985] 154 ITR 244 (PAT.). AND C. KANT & CO. V. CIT [1980] 126 IT R 63 (CAL.) THE AO ADDED AN AMOUNT OF RS.24 29 887/- . 7. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- IT A NO.378/AHD/08 7 THE NEXT GROUND OF APPEAL IS REGARDING ADDITION OF RS.24 26 887/- U/S 68 OF THE IT ACT. THE AO OBSERVED THAT AS PER THE BALA NCE SHEET THESE AMOUNTS WERE APPEARING AS CREDITS IN RESPECT OF 16 DIFFERENT PARTIES AND THE APPELLANT DID NOT FILE CONFIRMATION OF THESE PA RTIES. HE THEREFORE TREATED THE-SAME AS BOOK ENTRIES AND MADE AN ADDITI ON OF THE SAID AMOUNT AS UNEXPLAINED CASH CREDITS. BEFORE ME THE ID. AR SUBMITTED THAT THE APPELLANT PRODUCE ORIGINAL BILLS OF THESE PARTIES WHICH WERE TRADE CREDITORS JUSTIFYING THE PURCHASES. CONFIRMATIONS THEREOF COULD NOT BE FILED SINCE THE Y WERE UNWILLING TO GIVE THE SAME AS THEY WERE NOT PAID THIS AMOUNT TILL THE DATE OF ASSESSMENT. THE APPELLANT FIRM HAD CLOSED DOWN IN NOVEMBER 200 5 AND IT WAS SURPRISING THAT THE AO INVOKED SECTION-68 IN RESPEC T OF THESE TRADE CREDITORS. THE AO DID NOT DOUBT THE GENUINENESS OF PURCHASES BUT THE SAME WERE NOT CASH CREDITS AND NO ADDITION ON THIS ACCOUNT COULD BE MADE. I HAVE GONE THROUGH THE DETAILS BALANCE SHEET AND AUDITOR'S REPORT. THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF SECT ION 68 OF THE IT ACT IN RESPECT OF THESE TRADE CREDITS IS WITHOUT APPRECIAT ING THE PROVISIONS OF THE SECTION. THESE ARE OBVIOUSLY ON ACCOUNT OF PURCHASE S MADE BY THE APPELLANT FROM THESE PARTIES AS THE NAMES OF THE CR EDITORS ARE ASSOCIATED CHEMICALS CORPORATION PROMPT DYE-CHEM REMAESH CHE MICALS UNIVERSAL IMPACTS VISHAL LAB PVT. LTD. ETC. AND A LL THE BALANCES ARE IN ODD FIGURES. THE AO HAS ACCEPTED THE PURCHASES MADE BY THE APPELLANT AND IF HE WAS NOT SATISFIED ABOUT THE GENUINENESS O F SUCH CREDITS HE COULD HAVE MADE INQUIRIES BY ISSUE OF NOTICES U/S 133(6) OF THE IT ACT. I AM ALSO INCLINED TO AGREE WITH THE APPELLANT THAT WHEN A FI RM CLOSES DOWN AND IS NOT MAKING PAYMENTS TO THE OUTSTANDING CREDITORS T HEY WOULD BE HARDLY INCLINED TO FILE CONFIRMATION OF SUCH BALANCES. HOW EVER THERE IS NO QUESTION OF APPLICATION OF SECTION 68 OF THE IT ACT IN SUCH CASES SINCE THESE ARE NOT UNEXPLAINED CASH CREDITS AS ENVISAGED BY THE PROVISIONS OF THAT SECTION. THE ADDITION IS DIRECTED TO BE DELETE D . 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO ON THE GROUND THAT ORIGINAL BILLS FOR PUR CHASES WERE NOT PRODUCED BEFORE HIM.THE LEARNED AR ON BEHALF OF TH E ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) AND RE LIED UPON DECISION IN CIT VS. PANCHAM DASS JAIN [2006] 205 C TR (ALL) 444. 9 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. AS IS APPARENT FROM THE OBSERVATIONS OF T HE LD. CIT(A) THE AMOUNT OF RS.24 29 887/- IN RESPECT OF 16 DIFFERENT PARTIES WAS REFLECTED IN THE IT A NO.378/AHD/08 8 BALANCE SHEET ON ACCOUNT OF PURCHASES MADE BY THE ASSESSEE FROM THESE PARTIES. EVEN THOUGH AO ACCEPTED THE GENUINENESS OF THE PURCHASES FROM THESE PARTIES STILL HE ADDED THE AMOUNT OUTSTANDING FOR WANT OF CONFIRMATIONS. THE LD. CIT(A) NOTICED THAT WHEN A FIRM CLOSED DOWN AND WAS NOT MAKING PAYMENTS TO THE OUTSTANDING CREDITORS THEY WOULD HARDLY BE I NCLINED TO FILE CONFIRMATION OF SUCH BALANCES . IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE AO ACCE PTED THE PURCHASES SALES AS ALSO THE TRADING RESULTS DISCLO SED BY THE ASSESSEE WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 68 COUL D NOT BE ATTRACTED ON THE PURCHASES MADE ON CREDIT. A SIMILAR VIEW WAS TAKEN BY THE HONBLE ALLAHABAD HIGH COURT IN PANCHAM DASS JAIN (SUPRA) . THERE IS NOTHING ON RECORD TO SUGGEST THAT THE PURCHASES MADE BY THE ASSESSEE WERE BOGUS. THE ASSESSEE HAS NOT RECEIVED ANY MONEY FROM THE AF ORESAID PARTIES. THE CREDIT REPRESENTS AMOUNT DUE TO THEM FOR PURCHASE . SEC. 6 8 COMES INTO PLAY ONLY WHERE ANY SUM IS FOUND CREDITED IN THE ACCOUNT AND THE ASSESSEE IS UNABLE TO GIVE SATISFACTORY EXPLANATION IN RESPECT OF THE NAT URE AND SOURCE OF THE SUM. THE SECTION CANNOT APPLY WHERE GOODS ARE ACQUIRED BY TH E ASSESSEE ON CREDIT AND AN ENTRY IS MADE CREDITING THE LIABILITY IN THE ACCOUN T OF THE PERSON FROM WHOM THE GOODS ARE ACQUIRED. IN THIS VIEW OF THE MATTER WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A) IN DELETIN G THE ADDITION OF RS.24 29 887/-. CONSEQUENTLY GROUND NO.2 IN THE APPEAL IS DISMISSE D. 10. GROUND NO.3 IN THE APPEAL RELATES TO DISALLOWAN CE OF WAGES AND SALARY OF RS.7 56 807/-. ON VERIFICATION OF THE SALARY AND WAGES REGISTERS THE AO NOTICED THAT:- A. THE PAYMENTS MADE TO THE WORKERS WERE IRREGU LAR AND LACKED ANY VERIFIABLE BASIS LIKE THE UNITS OF WORK DONE. FOR EVERY MONTH THE PAYMENTS VARIED ON ACCOUNT OF UNEXPLAINED REASONS; B. THE WAGE AND SALARY PAYMENTS LACKED ANY CERTAIN OR DIRECT RELATION TO THE PRODUCTION UNDERTAKEN OR THE UNITS OF LABOUR. C. THE WAGES PAID TO DIFFERENT WORKERS WERE DIFFERE NT THE PROPER AND ACCEPTABLE REASON FOR WHICH HAD NOT BEEN IT A NO.378/AHD/08 9 SUBMITTED AND THERE HAD BEEN NO DESCRIPTION OF THE EXACT SERVICES RENDERED BY THE LABOURERS. D. THE NO. OF WORKING DAYS PUT IN BY THE LABOUR ERS VARIED FROM PERSON TO PERSON AND THE DAILY ATTENDANCE REGI STERS OR THE HAZIRI CARDS HAD NOT BEEN PRODUCED FOR VERIF ICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS. E. THE COMPLETE NAME ADDRESS OF THE LABOURERS HAD NOT BEEN MENTIONED ON THE REGISTER THUS MAKING THE CLA IM OF EMPLOYMENT OF THESE LABOURERS VAGUE AND UNVERIFIABI E. F. ALSO THE SIGNATURES OF THE CLAIMED WAGE LABOURER S FOUND ON THE REGISTERS VARIED FROM ONE MONTH TO OTHER FOR THE SAME PERSON WHICH CAST CLOUD OF NON-GENUINENESS O N THE CLAIMED WAGES AND SALARIES EXPENSES. NUMEROUS SPECIFIC INSTANCES HAD BEEN DETECTED AND MARKED ON THE COPY OF THE WAGE REGISTERS SUBMITTED BY THE ASSESSE E. THE LD. A. R. SHRI S. DESHWAL HAD ALSO INSPECTED TH ESE ANOMALIES. G. CERTAIN PERSONS WHO WERE LITERATE HAD SUDDENLY T URNED ILLITERATE AND HAD GIVEN THUMB IMPRESSIONS. LIKEWIS E SEVERAL PERSONS WHO WERE ILLITERATE AND GIVING THU MB IMPRESSION IN ONE MONTH HAD SUDDENLY BECOME LITERAT E AND SIGNED IN ENGLISH/HINDI. THESE HAD BEEN FOUND ONLY FROM A RANDOM CHECK OF THE REGISTERS FURNISHED. THE ACTUAL INSTANCES MAY BE NUMEROUS. IN THE LIGHT OF AFORESAID DEFECTS AND REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER THE AO INVOKED PROVISIONS OF SEC. 145 OF THE ACT ON THE GROUND THAT THE WAGE REGISTER SUBMITTED BY T HE ASSESSEE WAS INCOMPLETE AND INCORRECT AND ACCORDINGLY 25% OF T HE WAGES WERE DISALLOWED RESULTING IN A DISALLOWANCE OF RS.7 56 807/-. 11. ON APPEAL THE LEARNED CIT(A) RESTRICTED THE DI SALLOWANCE TO RS. 50 000/- WITH THE FOLLOWING OBSERVATIONS:- THE NEXT GROUND OF APPEAL IS REGARDING DISALLOWANC E OF 25% OUT OF WAGES BY REJECTING WAGE REGISTER U/S 145 OF THE IT ACT. T HE AO OBSERVED THAT A PERUSAL OF WAGES AND SALARY REGISTERS SHOWED THAT P AYMENTS MADE TO WORKERS WERE IRREGULAR AND DIFFERENT AND NUMBER OF WORKING DAYS PUT IN BY LABOURERS VARIED FROM PERSON TO PERSON. SIGNATURES OF THE LABOURERS IN RESPECT OF THE SAME PERSON DIFFERED FROM ONE MONTH TO ANOTHER AND THERE WAS NO WAY TO VERIFY THE CORRECTNESS OF THE REGISTE R. HE THEREFORE APPLIED IT A NO.378/AHD/08 10 PROVISIONS OF SECTION 145 FOR REJECTING THE WAGES R EGISTER AND DISALLOWED 25% OF THE WAGES ON AN ESTIMATED BASIS. BEFORE ME THE ID. AR SUBMITTED THAT WAGES WERE PAI D TO THE WORKERS ON THE BASIS OF ATTENDANCE AND NOT THE UNITS OF WORK DONE AS OBSERVED BY THE AO. THE WORKERS WERE MOSTLY ILLITERATE AND THAT IS WHY THEIR SIGNATURE WOULD DIFFER FROM MONTH TO MONTH. TOTAL WAGES PAID DURING THE YEAR WAS COMPARABLE IF VIEWED AS A PERCENTAGE OF JOB CHARGE S RECEIPT AND WERE ONLY 7.06% COMPARED TO 11% TO 13% PAID BY OTHER DYE ING HOUSES. I HAVE CONSIDERED THE SUBMISSION AND FIND THAT THE AO HAS MADE THE DISALLOWANCE AGAIN ON THE BASIS OF CONJECTURE AND S URMISES. THERE WOULD BE DIFFERENCE IN THE QUANTUM OF WAGES PAID SINCE PA YMENT WAS MADE DEPENDING ON THE NUMBER OF DAYS AND NOT THE UNITS O F JOB PUT IN BY THE LABOURERS. THE SIGNATURES OF A LABOURER COULD ALSO BE DIFFERENT IN DIFFERENT MONTHS AS THEY WERE ILLITERATE AND A LITERATE PERSO N IN NORMAL COURSE SIGNS IN DIFFERENT WAYS DURING A PERIOD OF TIME. FURTHER IT WOULD DEPEND ON THE PERSON CONCERNED TO PUT THUMB IMPRESSION OR SIGNATU RE BEING ILLITERATE AND HE WOULD NOT REMEMBER WHETHER HE SIGNED IN A PARTI CULAR WAY OR NOT IN THE EARLIER MONTH. THESE SO CALLED DEFECTS IN THE WAGES REGISTER CANNOT BE MADE A GROUND FOR REJECTING THE BOOKS AND DISALLOWI NG A HUGE AMOUNT OF 25% OF THE TOTAL WAGES. HOWEVER IT IS A POSSIBILIT Y THAT SOME OF THE LABOUR CHARGES WERE INFLATED AND IT WOULD BE REASONABLE IF A TOKEN DISALLOWANCE OF RS.50 000/- IS SUSTAINED ON THIS GROUND. THE AO SHALL REDUCE THE DISALLOWANCE ACCORDINGLY. 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY CERTAIN DEFECTS WERE NOTICE D BY THE AO AND THE LD. CIT(A) CONSIDERING THE GRAVITY OF THE DEFE CTS RESTRICTED THE DISALLOWANCE TO RS.50 000/- ALONE. THE LD. DR DID N OT PLACE ANY MATERIAL BEFORE US TO AS TO ENABLE US TO ENHANCE TH E DISALLOWANCE. IN THE ABSENCE OF ANY BASIS WE ARE NOT INCLINED TO INTERFERE. THEREFORE GROUND NO.3 IN THE APPEAL IS DISMISSED. 14. GROUND NO.4 IN THE APPEAL RELATES TO DISALLOWAN CE OF UNVERIFIABLE EXPENSES OF RS.2 00 517/-. THE ASSESS EE CLAIMED IT A NO.378/AHD/08 11 EXPENSES TO THE TUNE OF RS.2 18 189/- TOWARDS STAFF WELFARE RS.72 474/- TOWARDS HIRING CHARGES RS.91 745/- TOW ARDS INTEREST RS.2 80 122/- TOWARDS TELEPHONES RS.50 277/- TOWA RDS ELECTRICITY EXPENSES AND RS.89 262/- TOWARDS OFFICE EXPENSES. S INCE THE ASSESSEE DID NOT PRODUCE THE RELEVANT BILLS AND CLA IMED THESE EXPENSES ON SELF VOUCHERS THE AO DISALLOWED 25% OF THESE EXPENSES RESULTING IN DISALLOWANCE OF RS.2 00 517/ -. 15. ON APPEAL THE LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO RS.40 000/- WITH THE FOLLOWING OBSERVATIONS:- BEFORE ME THE LD. AR SUBMITTED THAT THE EXPENSES WERE PRIMARILY PETTY IN NATURE AND INCURRED TOWARDS CONVEYANCE COFFEE COL D-DRINKS REFRESHMENT EXPENSES ETC. AND TELEPHONE AND ELECTRICITY EXPENSE S WERE PAID TO GOVT. INSTITUTIONS AND THEREFORE COULD NOT BE TREATED AS NON-GENUINE. FURTHER ALL THE VOUCHERS WERE SIGNED BY RESPECTIVE OFFICIALS AN D WERE WITHIN THE LIMITS SPECIFIED U/S 40A(3) OF THE IT ACT. I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT TH E TELEPHONE AND ELECTRICITY EXPENSES CANNOT BE TREATED AS NON-GENUI NE OR UNVERIFIABLE. FURTHER THE EXPENDITURE ON CONVEYANCE AND REFRESHM ENTS HAS TO BE CLAIMED ON THE BASIS OF VOUCHERS ONLY SINCE NO PRIN TED BILLS WOULD BE AVAILABLE FOR THE SAME. FURTHER PAYMENTS FOR THE S AME COULD ALSO NOT BE MADE BY CHEQUE. HOWEVER SINCE THE EXPENSES HAVE BE EN INCURRED IN CASH IT IS PROBABLE THAT A PART OF THE SAME HAS BE EN INFLATED AND THEREFORE A TOKEN DISALLOWANCE IS CALLED FOR IN THIS CASE. IT WOULD BE REASONABLE IF THE DISALLOWANCE IS RESTRICTED TO RS.40 000/- ONLY FOR POSSIBLE EXCESSIVE AND NON-BUSINESS USE. 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO DID NOT POINT OUT A NY SPECIFIC ITEM OF EXPENDITURE OUT OF EXPENSES OF RS.8 02 069/- WHICH WAS NOT AMENABLE TO VERIFICATION OR HAD NOT BEEN INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. CONSIDERI NG THE NATURE OF IT A NO.378/AHD/08 12 AFORESAID EXPENSES THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO RS.40 000/- ALONE. THE LD. DR DID NOT PLACE ANY MAT ERIAL BEFORE US TO AS TO ENABLE US TO ENHANCE THE DISALLOWANCE. IN THE ABSENCE OF ANY BASIS WE ARE NOT INCLINED TO INTERFERE. THEREF ORE GROUND NO.4 IN THE APPEAL IS DISMISSED. 18. GROUND NOS.5 AND 6 BEING MERE PRAYER NOR ANY SUBMISSIONS HAVING BEEN MADE ON THESE GROUNDS DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. 19. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 20. IN THE RESULT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 18-03-2011 SD/- SD/- (D K TYAGI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 18 -03-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S KOYAL TEXTILE MILLS 601 LAXMI VILAS APARTM ENT B/H KOTAK HOUSE GHOD DOD ROAD SURAT 2. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-6 ROOM NO. 623 AAYAKAR BHAVAN MAJURA GATE SURAT 3. CIT CONCERNED 4. CIT(A)-IV SURAT 5. DR ITAT AHMEDABAD BENCH-B AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD