THE ITO, v. SHRI SAITAN MAL JAIN,

1 IN THE INCOME TAX APPELATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH AND SHRI V.K. GUPTA AM ITA NO.388/IND/06 A.Y.2001-02 INCOMETAX OFFICER DHAR APPELLANT VS SANTOSH JAIN L/H OF LATE SHRI SHAITANMAL JAIN PROP. M/S CHOUDHARY TRADING COMPANY KESUR DISTT. DHAR RESPONDENT PAN ABVPJ 2802-R ITA NO.389/IND/06 A.Y.2001-02 SANTOSH JAIN L/H OF LATE SHRI SHAITANMAL JAIN PROP. M/S CHOUDHARY TRADING COMPANY KESUR DISTT. DHAR APPELLANT VS INCOMETAX OFFICER DHAR RESPONDENT ASSESEE BY SHRI AJAY TULSIYAN & SHRI MAHESH AGRAWAL REVENUE BY SMT. APARNA KARAN SR. DR O R D E R PER V.K. GUPTA AM THESE CROSS APPEALS ARISE OUT OF THE ORDER OF THE L EARNED CIT(A) DATED 29.3.2006 FOR THE ASSESSMENT YEAR 2001 -02. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PER USED THE MATERIAL ON RECORD. 3. FIRST WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO. 388/IND/06 WHEREIN THE REVENUE IS AGGRIEVED BY THE DECISION OF 2 THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IN DELETING THE ADDITION OF RS.16 00 705/- MADE BY THE ASSESSIN G OFFICER BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF TRADING OF FOOD GRAINS. THE ASSESSING O FFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THERE WERE SUBSTANTIAL OUTSTANDING AMOUNTS UNDER THE HEAD KIS AN CREDITORS IN THE BALANCE SHEET. THE ASSESSING OFFICER REQUIR ED THE ASSESSEE TO SUBMIT THE DETAILS OF SUCH CREDITORS SO THAT VERIFICATION OF SUCH CREDITORS COULD BE DONE. THE A SSESSEE SUBMITTED ADDRESSES AND OTHER DETAILS OF SUCH FARME RS. SUMMONS UNDER SECTION 131 WERE ALSO ISSUED AND IN CASES WHE RE SUCH SUMMONS COULD BE SERVED STATEMENTS OF THOSE FARMER S WERE ALSO RECORDED. THE ASSESSING OFFICER ON THE BASIS OF STA TEMENTS OF THE FARMERS RECORDED UNDER SECTION 131 FOUND THAT THE F ARMERS HAD RECEIVED PAYMENTS WITHIN A VERY SHORT PERIOD OF SAL E OF PRODUCE BY THEM TO THE ASSESSEE. HENCE THE OUTSTANDING AM OUNT SHOWN BY THE ASSESSEE AS ON 31 ST MARCH 2001 COULD NOT BE CONSIDERED AS GENUINE. IN THE CASE OF SOME FARMERS SUMMONS UN DER SECTION 131 COULD NOT BE SERVED AT THE ADDRESSES GIVEN BY T HE ASSESSEE. HENCE THE ASSESSING OFFICER REQUIRED THE ASSESEE T O PRODUCE SUCH FARMERS. THEREAFTER THE ASSESSING OFFICER RE QUIRED THE ASSESSEE TO PROVE OTHER CREDITORS ALSO. HOWEVER TH E ASSESSEE COULD NOT PRODUCE THEM. HENCE THE ASSESSING OFFICE R HELD THAT THE CREDITORS WHICH GAVE DIFFERENT VERSIONS IN THEI R STATEMENTS AND 3 THE CREDITORS WHICH WERE NOT PRODUCED THE GENUINEN ESS OF TRANSACTIONS AND CREDIT WORTHINESS THEREOF REMAINED UNSUBSTANTIATED. ACCORDINGLY HE MADE AN ADDITION OF RS. 17 89 455/- UNDER SECTION 68 OF THE ACT. 4. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APP EAL BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) WHE REIN THE ASSESSEE SUBMITTED THAT TOTAL OUTSTANDING CREDITORS WERE TO THE TUNE OF RS.41 02 934/- COMPRISING OF THE FOLLOWING CATEGORIES :- SR. NO. CATEGORY NO. OF FARMERS AMOUNT OUTSTANDING ADDITIONS MADE BY AO 1 CASES IN WHICH AO WAS FULLY SATISFIED 28 23 13 479 NIL 2. CASES IN WHICH FARMERS WERE PRODUCED BY THE ASSESSEE 17 16 75 705 16 75 705 3. CASE IN WHICH FARMER COULD NOT BE PRODUCED DUE TO ILLNESS 1 1 13 750 1 13 750 TOTAL 46 41 02 934 17 89 455 THE ASSESSEE FURTHER SUBMITTED THAT REGULAR BOOKS O F ACCOUNT HAD BEEN MAINTAINED WHICH WERE AUDITED AND THE TRADING RESULTS OF THIS YEAR WERE ALSO BETTER AS COMPARED TO EARLIER Y EARS. HENCE THERE WAS NO OCCASION TO REJECT THE BOOKS OF ACCOUN T PARTICULARLY WHEN THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFECT IN SUCH BOOKS OF ACCOUNT. THE ASSESSEE ALSO PLACED RELIANC E ON SOME JUDICIAL DECISIONS IN SUPPORT OF THESE CONTENTIONS. THE ASSESSEE ALSO CONTENDED THAT THE STATEMENTS OF FARMERS WERE TAKEN AT THE 4 BACK OF THE ASSESSEE AND THE ASSESSEE HAD NOT BEEN GIVEN AN OPPORTUNITY TO CROSS EXAMINE THEM HENCE SUCH STAT EMENTS COULD NOT BE USED AGAINST THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THAT SOME OF THE CREDITORS COULD NOT BE PRODUCED DU E TO UNAVOIDABLE CIRCUMSTANCES. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) CALLED THE REMAND REPORT FROM T HE ASSESSING OFFICER. IN THE REMAND PROCEEDINGS THE ASSESSING OF FICER AGAIN EXAMINED ALL THE CREDITORS WHEREIN IT WAS STATED BY THE FARMERS THAT THEY DID NOT REMEMBER THE DATES OF SALES AND T HE PERIOD WHEN THEY RECEIVED THE PAYMENTS. THE ASSESSEE SUBMI TTED THAT IN THE SAID REMAND PROCEEDINGS THE APPROACH OF THE ASS ESSING OFFICER REMAINED THE SAME. THE ASSESSEE ALSO GAVE D ETAILED SUBMISSIONS TO THE LEARNED COMMISSIONER OF INCOMETA X (APPEALS). IT WAS SPECIFICALLY POINTED OUT THAT 13 FARMERS WHO COULD NOT BE PRODUCED EARLIER WERE PRODUCED LATER O N ALONG WITH PROOFS OF THEIR LAND HOLDINGS HENCE NOW 100% OF T HE CREDITORS HAD BEEN PRODUCED BEFORE THE ASSESSING OFFICER WHO ALSO ACCEPTED THE FACT OF SELLING THEIR AGRICULTURAL PRO DUCE TO THE ASSESSEE. IT WAS ALSO CONTENDED THAT WHATEVER WAS P OSSIBLE IN LAW THE ASSESSEE HAD COMPLIED THEREWITH HENCE NO ADDITION WAS WARRANTED. THE LEARNED COMMISSIONER OF INCOMETAX (A PPEALS) THEREAFTER EXAMINED THE TRANSACTIONS OF MAJORITY OF THE FARMERS AND THEIR STATEMENTS AND REACHED TO THE FOLLOWING C ONCLUSIONS :- AFTER CONSIDERATION OF THE STATEMENTS OF THE FARMER S THE FOLLOWING COMMON FACTS THAT ARE NOTICED :- 5 A) THE FARMERS NEVER DENIED HAVING SOLD THEIR PRODUCE TO THE APPELLANT. B) THE RECORDS AS MAINTAINED BY THE APPELLANT HAVE BEEN ASSUMED TO BE WRONG DESPITE THE FACT THAT THEY WERE WRITTEN RECORDS WHEREAS WHAT THE FARMERS HAVE STATE D IS ACCEPTED BY THE AO TO BE TRUE DESPITE THE FACT T HAT THEY GAVE INFORMATION ON AN ESTIMATE BASED ON THEIR MEMORY AND NOT ON ANY DOCUMENTARY PROOF; C) THE AO EXPECTED THE APPELLANT TO PRODUCE DOCUMENTARY PROOF IN THE ABOVE CASES IN SUPPORT OF HIS CLAIM EVEN WHEN HE WAS WELL AWARE THAT AS NO RECORDS WERE MAINTAINED BY THE FARMERS NO SUCH DOCUMENTARY EVIDENCE COULD BE PRODUCED EXCEPT THE CONFIRMATION OF THE FARMERS. D) BESIDES MORE THAN 3 YEARS ELAPSED SINCE THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE FARMERS TOOK PLACE. IT IS NOT POSSIBLE FOR ANYONE TO REMEMB ER THE EXACT DETAILS FROM MEMORY OF THE TRANSACTIONS T HAT TOOK PLACE. CONSIDERING THE ABOVE IT SHOULD BE ACCEPTED THAT WRITTEN RECORDS ARE MORE AUTHENTIC TH AN VERBAL SAYINGS. IN THESE CASES WHAT THE AO SHOULD HAVE ENSURED WAS THAT THE CREDITOR HAD AGRICULTURAL LAND CAPABLE OF GROWING SUFFICIENT CROP OF SOYABEAN AND THAT THE FARMERS AD MITTEDLY MADE THE SALE OF SOYABEAN TO THE APPELLANT. THE FAR MERS BEING MOSTLY ILLITERATE COULD NOT BE EXPECTED TO RE MEMBER EXACT DATES AND FIGURES. THE PERUSAL OF THE COPIES OF STATEMENTS SENT BY THE AO CONFIRMS THAT THE FARMERS ACTUALLY SOLD SOYABEAN TO THE APPELLANT. AS PER TH E ASSESSMENT ORDER THE PURCHASES WERE GENUINE AS THE CONCERNED FARMERS HAD RECEIVED PAYMENT AGAINST THE SALES OF SOYABEAN TO THE APPELLANT. IT IS A WELL K NOWN FACT THAT SMALL FARMERS DO NOT MAINTAIN ANY BOOKS OF ACC OUNTS AND THEREFORE WHAT THE FARMERS HAVE STATED CANNOT B E CONSIDERED TO BE NECESSARILY ACCURATE BUT IS AT BES T AN APPROXIMATION. THE DECISION OF HONBLE ITAT BANGAL ORE BENCH IN THE CASE OF ASST. CIT V. SUDHA AGENCIES RE PORTED IN (2001) 73 TTJ (BANGALORE) 578 DIRECTLY APPLIES T O THE APPELLANTS CASE ON FACTS AND MERITS. IN THIS CASE IT HAS BEEN HELD AS UNDER :- INCOME-CASH CREDIT-GENUINENESS ALLEGED CREDITORS WHO ARE WEAVERS AND WHO SUPPLY GOODS TO THE ASSESSEE APPEARED BEFORE THE AO AND CONFIRMED THE EXISTENCE OF TRANSACTIONS WITH THE ASSESSEE- ADMITTEDLY THE SAID CREDITORS WERE NOT MAINTAINING 6 REGULAR BOOKS OF ACCOUNTS AND ASSERTED THAT THEY WERE SUBMITTING STATEMENTS ON THE BASIS OF MEMORY IN SOME CASES THE BALANCES STATED BY THE CREDITORS DID NOT AGREE WITH THE BALANCES SHOWN IN ASSESSEES BOOKS OF ACCOUNTS SAID WEAVERS WERE NOT SUBJECTED TO CROSS EXAMINATION BY THE ASSESSEE CIT(A) NOTED THAT THE PAYMENTS HAVE ALWAYS BEEN SETTLED BY ACCOUNT PAYEE CHEQUES AO HAS PROCEEDED TO RELY UPON THE EXTRANEOUS MATERIAL PROCURED THROUGH THE STATEMENTS OF THE CREDITORS WHICH LACKED CREDIBILIT Y AS ADMITTED BY CREDITORS THEMSELVES CREDITS HAVE TO BE TREATED AS GENUINE. HOWEVER WITH REGARD TO ONE FARMER NAMELY SH. AMBARAM PAIMALPUR THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED THAT HE COULD NOT BE PRODUCED AS HE WAS SUFFERING FROM SLIP DISC. THE APPELLANT WAS AS KED BY THE AO TO PRODUCE HIM VIDE ORDER SHEET ENTRY DATED 10.02.2004. DURING THE APPELLATE PROCEEDINGS THE MATER WAS REMANDED TO THE AO FOR RECORDING HIS STATEMENT IN MAY 2005 AND THE APPELLANT HAS NOT BEEN ABLE TO PR ODUCE HIM EVEN AFTER ABOUT 15 MONTHS STATING HE WAS ILL S UFFERING FROM THE SAME AILMENT. NO EVIDENCE OF THE SAME HAS BEEN PRODUCED. UNDER THE CIRCUMSTANCES THE CROP CREDIT IN RESPECT OF SH. AMBARAM CANNOT BE ACCEPTED AS GENUIN E. AFTER CAREFUL CONSIDERATION OF ALL THE FACTS AND DO CUMENTS AND JUDICIAL PRONOUNCEMENTS I HOLD THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE CONFIRMATIONS OF THE FAR MERS WITHOUT ESTABLISHING THAT THE APPELLANT HAD BEEN GENERATING UNACCOUNTED FOR MONEY FOR PAYMENTS TO TH E FARMERS OUTSIDE THE BOOKS OF ACCOUNT. THEREFORE T HE ADDITIONS MADE ON ACCOUNT OF ALL THE CREDITS FOR AG RICULTURAL PRODUCE EXCEPT IN THE CASE OF SH. AMBARAM AND A PAR T OF SH. BHIMJI AS DISCUSSED ABOVE ARE DELETED. THE ADD ITIONS OF RS.1 13 750/- ON ACCOUNT OF CREDIT OF SH. AMBARA M AND RS. 75 000/- ON ACCOUNT OF CREDIT OF SH. BHIMJI ARE CONFIRMED. THUS HE CONFIRMED THE ADDITION IN RESPECT OF ONLY TWO FARMERS WHERE THE GENUINENESS OF TRANSACTION COULD NOT BE P ROVED. AGGRIEVED BY THIS BOTH THE REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 5. THE LEARNED SENIOR DR NARRATED THE FACTS AND PLA CED STRONG RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. TH E LEARNED 7 COUNSEL FOR THE ASSESSEE ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF THE LEARNED COMMISSIONER O F INCOMETAX (APPEALS) AS REGARDS DELETION MADE BY HIM. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES MATERIAL ON RECORD AND THE ORDERS OF THE AUT HORITIES BELOW. IT IS NOTED THAT THE ASSESSEE IS TRADING IN FOOD GR AINS. THE ASSESSEE IS PURCHASING AGRICULTURAL PRODUCE I.E. FO OD GRAINS FROM THE FARMERS. THE FARMERS HAVE CONFIRMED THE FACT O F SELLING THEIR PRODUCE TO THE ASSESSEE. THEY HAVE ALSO CONFIRMED THE FACT OF RECEIPT OF PAYMENTS FROM THE ASSESSEE. THE TIME OF RECEIPT OF MONEY AS STATED BY THEM AND AS PER THE BOOKS OF ACC OUNT IS LITTLE BIT DIFFERENT HOWEVER THE FACT WHICH IS CRUCIAL T O NOTE IS THAT SUCH FARMERS HAVE NOT MAINTAINED ANY REGULAR BOOKS OF AC COUNT AND THERE IS A TIME GAP BETWEEN THE TRANSACTIONS AND TH E INQUIRIES MADE BY THE ASSESSING OFFICER. HENCE MINOR VARIATI ONS IN THEIR STATEMENTS CANNOT BE IN OUR OPINION A PROPER BASI S FOR TREATING SUCH CREDITORS AS UNEXPLAINED CASH CREDIT UNDER SEC TION 68 OF THE ACT. WE ARE FURTHER OF THE VIEW THAT IN THE ORIGIN AL PROCEEDINGS THE ASSESSING OFFICER DID NOT GIVE ANY OPPORTUNITY OF C ROSS EXAMINATION TO THE ASSESSEE NOR STATEMENTS RECORDED BY HIM WERE BROUGHT TO THE NOTICE OF THE ASSESSEE. HENCE THE VALIDITY OF SUCH STATEMENTS AS EVIDENCE GETS DIMINISHED. WE AR E FURTHER OF THE VIEW THAT THE IDENTITY OF SUCH FARMERS HAS BEEN ESTABLISHED TRANSACTIONS OF PURCHASE OF FOOD GRAINS FROM SUCH F ARMERS IS ALSO NOT IN DISPUTE AS SALE THEREOF HAS BEEN ACCEPTED AN D CREDIT 8 WORTHINESS IN THE FORM OF LAND HOLDINGS CAPACITY TO PRODUCE SUCH QUANTUM OF FOOD GRAINS OF SUCH CREDITORS IS AL SO NOT IN DOUBT. THUS TAKING INTO CONSIDERATION THE ENTIRE FACTS AN D CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAS RIGHTLY DELETED THE ADDITION. ACCORD INGLY WE DISMISS BOTH THE GROUNDS OF THE REVENUE. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. 8. NOW WE SHALL TAKE UP THE ASSESSEES APPEAL IN I TA NO. 389/IND/06 WHEREIN THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IN CONFIRMING THE PART DISALLOWANCE OF RS. 1 13 750/- IN THE CASE OF SHRI AMBARAM AND SHRI BHIMJI BHAGWAN AMOUNTING TO RS.75 000/-. 9. THE FACTS HAVE ALREADY BEEN NARRATED HENCE NOT REPRODUCED. BOTH THE PARTIES HAVE REITERATED THEIR RESPECTIVE STANDS. THE FINDINGS OF THE LEARNED COMMISSIONER O F INCOMETAX (APPEALS) RELATING TO CONFIRMATION OF THESE DISALLO WANCES HAVE ALREADY BEEN REPRODUCED HEREINBEFORE. IN OUR VIEW IN THE CASE OF THESE CREDITORS THE ASSESSEE HAS NOT BEEN ABLE TO DISCHARGE ITS ONUS AS REQUIRED UNDER SECTION 68 OF THE ACT BOTH I N THE COURSE OF ORIGINAL PROCEEDINGS AS WELL AS IN REMAND PROCEEDIN GS. HENCE WE CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IN THIS REGARD. THUS GROUND NO. 1 OF TH E ASSESSEES APPEAL IS REJECTED. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 10. TO SUM UP BOTH APPEALS ARE DISMISSED. 9 ORDER PRONOUNCED IN OPEN COURT ON 22 ND JANUARY 2010. (JOGINDER SINGH) (V.K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER JANUARY 22 2010 COPY TO APPELLANT RESPONDENT CIT CIT(A) DR GU ARD FILE DN/-