Addl.CIT,Central Range-1, Pune v. Ghodawat Foods International Pvt. Ltd.,, Kolhapur

ITA 882/PUN/2009 | 2004-2005
Pronouncement Date: 30-10-2013 | Result: Dismissed

Appeal Details

RSA Number 88224514 RSA 2009
Assessee PAN AABCG7301E
Bench Pune
Appeal Number ITA 882/PUN/2009
Duration Of Justice 4 year(s) 3 month(s) 6 day(s)
Appellant Addl.CIT,Central Range-1, Pune
Respondent Ghodawat Foods International Pvt. Ltd.,, Kolhapur
Appeal Type Income Tax Appeal
Pronouncement Date 30-10-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-10-2013
Date Of Final Hearing 03-10-2013
Next Hearing Date 03-10-2013
Assessment Year 2004-2005
Appeal Filed On 24-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO.866/PN/2009 A.Y. 2004-05 GHODAWAT FOODS INTERNATIONAL PVT. LTD. 437 A/P CHIPRI TAL. SHIROL DIST. KOLHAPUR PAN AABCG7301E APPELLANT VS. ACIT ICHALKARANJI CIRCLE ICHALKARANJI RESPONDENT ITA NO.882/PN/2009 A.Y. 2004-05 ACIT ICHALKARANJI CIRCLE ICHALKARANJI APPELLANT VS. GHODAWAT FOODS INTERNATIONAL PVT. LTD. 437 A/P CHIPRI TAL. SHIROL DIST. KOLHAPUR PAN AABCG7301E RESPONDENT APPELLANT BY : SHRI MAHEND RA MEHTA RESPONDENT BY : SMT. M.S . VERMA DATE OF HEARING : 10.10.2013 DATE OF ORDER : 30.10.2013 ORDER PER SHAILENDRA KUMAR YADAV JM THESE CROSS APPEALS FILED BY THE APPELLANT AND REV ENUE ARE ARISING FROM THE ORDER PASSED BY COMMISSIONER OF IN COME TAX (APPEALS) [(HEREINAFTER CALLED AS CIT(A)] KOLHAPUR DATED 25.03.2009 FOR A.Y. 2004-05. SO BOTH ARE BEING DE CIDED BY CONSOLIDATED ORDER. ASSESSEE HAS FILED ITS APPEAL ON FOLLOWING GROUNDS. 1) THE LEARNED CIT(A) HAS ERRED IN LAW A S WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN NOT HOL DING THAT THE ASSESSMENT WAS LIABLE TO BE ANNULLED INSPITE OF GIVING A FINDING THAT THE ASSESSING OFFICER HAS MADE THE ADD ITION U/S 68 OF THE INCOME TAX ACT WHICH WAS CONTRARY TO THE STATUTORY DIRECTION ISSUED U/S 144A BY THE ADDL. COMMISSIONER OF INCOME TAX OF NOT MAKING ADDITION U/S 68 OF THE INC OME TAX ACT. 2) WITHOUT PREJUDICE TO GROUND NO. 1 THE LEARNED CIT(A ) HAS ERRED IN LAW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION U/S 68 ON ESTIMATE BASI S TO THE EXTENT OF RS.8 87 03 901/- (OUT OF RS.18 68 90 938/ - ADDITION MADE IN THE ASSESSMENT ORDER). THE ADDITION SO CONF IRMED BE DELETED. 3) THE AUTHORITIES BELOW ERRED IN LAW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKIN G A DISALLOWANCE U/S 40A(3) OF RS.71 28 196/- BEING 20% OF THE PAYMENTS TO SUPPLIERS OF RS.3 56 40 982/-. THE PAYM ENTS SO MADE ARE COVERED BY THE EXCEPTIONS PROVIDED IN RULE 6DD AND HENCE THE ADDITION SO MADE BE DELETED. 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD AMEND MODIFY RECTIFY DELETE RAISE ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. REVENUE HAS FILED ITS APPEAL ON FOLLOWING GROUND S. 1. THE LD. CIT(A) ERRED IN HOLDING THAT A.O. HAS NOT E XAMINED THE ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS DISCHARGED OUTSIDE THE BOOKS OF ACCOUNTS BUT SHOWN AS OUTSTANDING IN THE REGULAR BOOKS OF A/C AS ON 31/03 /2004 FROM THE POINT OF THE VIEW OF SEC. 69 IN SPITE OF S PECIFIC DIRECTIONS ISSUED BY THE ADDL. CIT U/S.144A. 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT VIDE PARA 7.7 OF THE ASSESSMENT ORDER THE IMPUGNED ADDITION WAS MADE U/S 69 OF THE I.T.ACT. IT IS CLEARLY STAT ED IN PARAGRAPH 7.6 OF THE ASSESSMENT ORDER THAT THE ADDI TION IS MADE UNDER SECTION 69 AND NOT UNDER SEC. 68 OF THE I.T.ACT FOLLOWING THE DIRECTIONS OF ADDL. CIT UNDER SECTION 144A. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.9 81 87 037/- MADE ON ACCOUNT OF DISCHARGED CRED ITORS BUT SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNTS O F THE ASSESSEE AS ON 31/3/2004. 4. THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT IN CASE OF OUTSTANDING CREDITORS THAT THE BURDEN LIES ON TH E ASSESSEE TO PROVE THE GENUINENESS OF THE LIABILITY AND THE IDENTITY OF THE CREDITORS BUT THE ASSESSEE TO DISC HARGE THE ONUS. 5. THE LD. CIT(A) HAS ERRED IN ADOPTING FORMULA OF WEIGHTED AVERAGE CREDIT PERIOD OF 3 MONTHS TO HOLD THAT THE CREDITS ARISING DURING THE PERIOD OF 3 MONTHS FROM 1 ST JANUARY 2004 TO 31 ST MARCH 2004 ARE GENUINE WHICH IS LOGICALLY INCORRECT AND INAPPLICABLE TO THE FACTS OF THE PRES ENT CASE. 6. THE LD.CIT(A) HAS FAILED TO APPRECIATE THE FACT THA T A.O. HAS PROVED THAT ASSESSEE WAS MAKING PAYMENT IN CASH TO THE SUPPLIERS OUTSIDE THE BOOKS OF ACCOUNTS AND THEN SH OWING THE SAME LIABILITY AS OUTSTANDING CREDITORS IN BOOK S OF ACCOUNT. 7. THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT THE EV IDENCES BROUGHT ON RECORD BY THE A.O. TO ESTABLISH THAT CRE DITORS SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNTS WERE SQUARED UP LATER BY ENCASHMENT OF BEARER CHEQUES DR AWN IN THE NAME OF THE SUPPLIERS BY THE EMPLOYEES OF TH E ASSESSEE. 8. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.12 47 20 000/- MADE ON ACCOUNT OF DEEMED DIV IDEND U/S 2(22)(E) OF THE I.T. ACT. 1961. 9. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FAC T THAT SHRI SANJAY GHODAWAT IS A SHARE HOLDER OF MORE THAN 20% HOLDING IN THE SHARES OF ASSESSEE AND ALSO HOLDS MO RE THAN 10% SHARES OF GHODAWAT INDUSTRIES PVT. LTD. AND HEN CE THE A.O. HAS CORRECTLY INVOKED THE PROVISIONS OF SECTIO N 2(22)(E) OF THE I.T.ACT 1961. 10. THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING INSERTI ON OF A NEW CATEGORY OF PAYMENT BY THE FINANCE ACT 1987 W. E.F. 01/04/1988 VIZ. PAYMENT BY A COMPANY TO ANY CONCE RN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST WHICH DOES NOT SAY IN WHOSE HANDS THE DIVIDEND HAS TO BE BROUGHT TO TAX WHETHER IN THE HANDS OF THE CONCERN OR THE SHARE HOLDER. 11. THE LD.CIT(A) ALSO ERRED IN IGNORING THE CLARIFICAT ION ISSUED BY THE BOARD CIRCULAR NO.495 OF 1987 WHICH A RE CLEARLY APPLICABLE TO THE PRESENT CASE. 12. THE LD.CIT(A) ERRED IN EXCLUDING THE PROVISIONS OF LUXURY TAX AMOUNTING TO RS.50 42 48 892/- AS ASCERTAINED L IABILITY THOUGH IT IS CONTINGENT IN NATURE FROM ACCUMULATED PROFIT FOR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT. 13. THE LD.CIT(A) ERRED IN HOLDING THAT THE QUANTUM OF DEEMED DIVIDEND HAS TO BE WORKED OUT ON THE BASIS O F TOTAL CREDITS AND DEBITS IN THE ACCOUNTS INSTEAD OF WORKI NG OF EACH LOAN OR ADVANCE ON ENTRY BASIS. 14. THE LD. CIT(A) HAS ERRED IN DELETING ADDITION RS.4 10 21 320/- MADE ON ACCOUNT OF DISALLOWANCE MA DE U/S. 40A(3) OF I.T. ACT 1961. 15. THE LD.CIT(A) HAS FAILED TO APPRECIATE THE FACT THA T A.O. HAS NOT CHALLENGED THE GENUINENESS OF EXPENDITURE I .E. PURCHASES DEBITED IN THE P & L A/C BUT HELD THAT T HE LIABILITY SHOWN AS OUTSTANDING AS ON 31/03/2004 TOW ARDS PURCHASES MADE DURING THE YEAR WAS ALREADY DISCHARG ED PRIOR TO 31/3/2004 BY MAKING PAYMENT IN CASH OUTSID E THE BOOKS OF ACCOUNTS. 16. THE LD.CIT(A) OUGHT TO HAVE SUSTAINED THE ADDITION AS THE PAYMENT TOWARDS PURCHASES WAS MADE IN CASH OUTS IDE THE BOOKS OF ACCOUNTS IN CONTRAVENTION OF THE PROVI SIONS OF SECTION 40 A(3). 17. THE ORDER OF THE CIT(A) BE VACATED AND THAT THE ASS ESSING OFFICER BE RESTORED. 18. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND AN D MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 3. FIRST ISSUE IN ASSESSEES APPEAL IS WITH REGARD TO NOT FOLLOWING THE DIRECTIONS U/S.144A GIVEN BY THE ADDL.CIT ICHA LKARANJI RANGE. IN THIS REGARD IN APPEAL CIT(A) OBSERVED THAT THE DIRECTIONS GIVEN WERE GIVEN IN A CONSOLIDATED ORDER DT. 19/12/2006 F OR ALL THE GROUP COMPANIES BEING ASSESSED BY THE AO VIZ. GHODAWAT IN DUSTRIES P. LTD. GHODAWAT FOODS INTERNATIONAL P.LTD. SANJAY GHODAWAT (HUF) STAR FLEXI PACK INDUSTRIES P. LTD. IN THE CA SE OF THE APPELLANT I.E. GHODAWAT FOODS INTERNATIONAL DIRECT IONS ARE GIVEN ON THE FOLLOWING ISSUES. 1) ADDITION ON ACCOUNT OF UNPROVED CREDITS TO BE TXED U/S.68. 2) DISALLOWANCE U/S.40A(3). 3) ADDITION AS PER PROVISIONS OF SECTION 2(22)(E). 3.1 CIT(A) OBSERVED THAT THE DIRECTIONS GIVEN ON AC COUNT OF DEEMED DIVIDEND U/S.2(22)(E) HAS BEEN EXAMINED AND DISCUSSED IN THE ORDER IN THE CASE OF STAR FLEXI PACK INDUSTRIES . REGARDING DISALLOWANCE U/S.40A(3) THE DIRECTIONS WERE ONLY THAT THE CLAIM OF THE APPELLANT FOR RULE 6DD(1) SHOULD BE EXAMINED AN D ADJUDICATED BY A SPEAKING ORDER. IT WAS FOUND FROM THE ASSES SMENT ORDER THAT THE ASSESSING OFFICER HAS EXAMINED THE CLAIM OF EXA MINATION UNDER RULE 6DD AND ADJUDICATED THE ISSUE BY A SPEAKING OR DER. SO CIT(A) WAS JUSTIFIED IN HOLDING THAT IT CANNOT BE S AID THAT THE DIRECTIONS WERE NOT COMPLIED WITH. 3.2 COMING TO THE DIRECTIONS U/S. 144A WITH REGARD TO ADDITION U/S.68 THE QUESTION IS WHETHER THE ASSESSMENT CAN BE ANNULLED AS THE ASSESSING OFFICER DID NOT COMPLY FULLY WITH THE DIRECTIONS U/S.144A. IN THIS REGARD CIT(A) OBSERVED THAT IN THE CASE OF STAR FLEXI PACK INDUSTRIES WHEREIN IT WAS HELD THAT SIM ILAR PROCEDURAL IRREGULARITIES CANNOT ANNULLED THE ASST ORDER AL THOUGH IT COULD BE DECLARED IRREGULAR. SO IT CANNOT BE HELD AS NULL AND VOID. THE DISTINCTION BETWEEN SECTION 68 69 AND 69C ARE MORE TECHNICAL IN NATURE MEANT TO APPLY TO DIFFERENT SITUATIONS. T HE ALLEGATION OF THE ASSESSING OFFICER IS THAT MONEY HAS BEEN PAID W HILE THE CREDITS IN THE BOOKS HAD NOT BEEN CANCELLED. FROM THIS POIN T OF VIEW THE ADDITION ON ACCOUNT OF UNEXPLAINED CREDIT IS NOT ER RONEOUS. SEEN FROM ANOTHER ANGLE ADDITION COULD ALSO BE MADE U/S .69 ON ACCOUNT OF UNEXPLAINED INVESTMENT IN AS MUCH AS PAY MENTS HAD BEEN MADE TO SUPPLIERS WHICH WERE NOT RECORDED IN T HE BOOKS. THE DISTINCTION IS THEREFORE MORE OF A TECHNICAL NATURE . IN VIEW OF THE ABOVE DISCUSSION CIT(A) WAS JUSTIFIED IN REJECTING CONTENTION OF ASSESSEE ON THIS POINT. WE UPHOLD THE SAME. 4. ON MERIT FIRST WE TAKE UP THE ISSUE WITH REGARD TO ADDITION OF RS.18 68 90 938/- BY THE ASSESSING OFFICER. THE AP PELLANT IS A PRIVATE LIMITED COMPANY SITUATED AT CHIPRI IN SANGL I DISTRICT AND IS A PART OF GHODAWAT GROUP OF INDUSTRIES SUBSTANTIALL Y OWNED BY SHRI SANJAY GHODAWAT. THE APPELLANT IS A MANUFACTURER OF STAR REFINED OIL UNDER THE 'STAR' BRAND. TOTAL TURNOVER FOR THE YEAR WAS RS.80.33 CRORES WITH GROSS PROFIT OF RS.9.28 CROR ES AT 11.5% OF THE TURNOVER. THE TURNOVER OF THE APPELLANT INCRE ASED SUBSTANTIALLY IN THE SUBSEQUENT YEAR FROM RS.80 COR ES TO RS.142 CRORES IN 2005-06 AND RS.125 CRORES IN A.Y.2006-07. 4.1 THE ASSESSING OFFICER MADE ADDITION OF RS.18 68 90 938/- FOR FOLLOWING REASONS: A) THE AGGREGATE AMOUNT OF SUNDRY CREDITORS IN THE BAL ANCE SHEET WAS RS.26.3 CRORES ON A TURNOVER OF RS.80 CRO RES FOR THE YEAR WHEREAS IN SUBSEQUENT YEAR THE TOTAL C REDITORS WERE ONLY RS.7.3 CRORES ON TURNOVER OF RS.142 CRORES IN A.Y.2005-06 AND RS.2.11 CRORES ON TURNOVER OF RS.12 5 CRORES IN A.Y2006-07. THE ABOVE AMOUNT WAS IN THE NAME OF 315 INDIVIDUAL CREDITORS. THE NUMBER AND THE TOTAL AMO UNT OF CREDITORS WERE FOUND ABNORMALLY HIGH FOR THE YEAR U NDER CONSIDERATION. B) IN MANY CASES THE CREDITORS WERE CARRIED IN THE BO OKS FOR MORE THAN 3 MONTHS FROM OCTOBER AND NOVEMBER ONWARD S. THE CREDITORS WERE MAINLY FOR THE PURCHASE OF SOYABEEN. ON ENQUIRY WITH RAJARAM SOLVEX A FIRM IN THE SA ME BUSINESS IT-WAS REVEALED THAT THE CREDIT PERIOD W AS 15 TO 30 DAYS NORMALLY AND 3 TO 5 DAYS IN CASE IMMEDIATE PAY MENT WAS INSISTED. VARIOUS DISCREPANCIES WERE NOTICED IN THE AMOUNT OF THE CREDITORS BY ASSESSING OFFICER. STAN D OF ASSESSEE HAS BEEN THAT MOST OF THE CREDITS HAD BEEN PAID IN THE EARLIER PART OF THE NEXT FINANCIAL YEAR BY CHEQ UE. ENQUIRY WITH THE BANKS HOWEVER REVEALED THAT PAYMENTS WERE MOSTLY BY BEARER CHEQUES. FURTHER THE CHEQUES BORE THE SI GNATURE OF ONE OF THE APPELLANT'S EMPLOYEES ON THE REVERSE WHI CH SHOWED THAT THE AMOUNT WAS ACTUALLY PAID TO HIM. IN SOME BATCHES IT WAS FOUND THAT ON THE BACK OF ONE CHEQUE THE AMO UNT REPRESENTED BY THE OTHER CHEQUES WAS ADDED AND THE TOTAL AMOUNT PAID TO AN EMPLOYEE SHRI ANIL CHAUGULE WHOSE SIGNATURE WAS TAKEN ON THE CHEQUE. C) THE MODUS OPERANDI OF THE APPELLANT' WAS FOUND TO M AKE THE PAYMENTS BY CASH WHILE AT THE SAME TIME SHOW BOGUS CREDIT BALANCE IN THE NAME OF THE PARTY. AT A LATER DATE WHEN CASH WAS AVAILABLE IN THE BOOKS BEARER CHEQUE WAS ISSUED IN THE SUPPLIER'S NAME BUT THE AMOUNT WAS COLLECTED BY ONE OF THE EMPLOYEES ON ENCASHMENT. D) THE ONUS WAS ON THE APPELLANT TO ESTABLISH T HE IDENTITY OF THE CREDITORS THE GENUINENESS OF THE TRANSACTIO N AND THE CREDITWORTHINESS OF THE CREDITORS. THE APPELLANT H OWEVER COULD NOT DISCHARGE THE ONUS SATISFACTORILY. THE S IGNATURE ON THE CONFIRMATORY LETTER DID NOT MATCH WITH THE SIGN ATURE OF THE SAME PERSON ON THE REVERSE OF THE BEARER CHEQUE. T HE PHOTO COPIES OF THE CONFIRMATION LETTERS AND THE BEARER C HEQUES HAVE BEEN MADE PART OF THE ASSESSMENT ORDER. E) THE APPELLANT GAVE NAMES AND ADDRESSES OF THE CREDI TORS TO WHOM LETTERS U/S. 133(6) WERE ISSUED. MOST OF TH ESE LETTERS WERE RETURNED UNSERVED DUE TO INCOMPLETE ADDRESS. SOME LETTERS WERE SERVED BUT NONE ATTENDED. A VERY FEW P ERSONS ATTENDED IN RESPONSE TO THE LETTERS. THE APPELLANT REQUESTED FOR SUMMONS TO BE ISSUED. FINALLY SUMMONS WERE ISS UED IN CASE OF 226 CREDITORS OUT OF WHICH 188 WERE RETURN ED UNSERVED DUE TO INCOMPLETE ADDRESS. 37 PERSONS AP PEARED AND FURNISHED WRITTEN REPLIES. F) MOST OF THE ABOVE 37 PERSONS DENIED ANY AMOUNT OUTSTANDING TO BE RECEIVED FROM THE APPELLANT AS ON 31/03/04. THEY STATED THAT THEY HAD BEEN PAID IN CASH WITHIN FEW DAYS OF DELIVERY OF GOODS. G) THE APPELLANT WAS FOUND TO HAVE CREATED BOGUS CREDI TORS ON THE BASIS OF ENQUIRIES WITH BANK BY ASSESSING OFFIC ER. ACCORDINGLY ADDITION OF RS.18 68 90 938/- WAS MADE BY ASSESSING OFFICER FOR REASONS DISCUSSED ABOVE. 4.2 IN APPEAL CIT(A) HAVING PERUSED THE ASSESSMENT ORDER THE COMMENTS OF THE ASSESSING OFFICER IN THE REMAND REP ORT AND THE SUBMISSION MADE BY THE APPELLANT FROM TIME TO TIME OBSERVED THAT THE PURCHASES OF SOYABEEN MADE BY THE APPELLANT WAS PRIMARILY MADE THROUGH COMMISSION AGENTS. THE COMMISSION AGEN T WORKS AS A MIDDLE MAN BETWEEN THE APPELLANT AND THE FARMERS. THE FARMERS WHO ARE THE ACTUAL SUPPLIERS ARE KNOWN ONLY TO THE BROKERS. BEFORE MAKING THE PAYMENT THE IDENTITY OF THE PARTIES IS CONFIRMED WITH THE BROKERS. THE BROKERAGE REGISTER GIVES DETAILS O F THE VOUCHER NUMBER NAME OF THE PARTY QUANTIFY IN BAGS PURCHA SE AMOUNT AND BROKERAGE THEREON. IN SUCH; SITUATION IT CANNO T BE ACCEPTED THAT THE APPELLANT WOULD BE IN DIRECT TOUCH OR CONT ACT OR HAVE KNOWLEDGE OF THE ACTUAL SUPPLIERS. THE APPELLANT HA S GIVEN COPIES OF LETTERS RECEIVED FROM' VARIOUS SUPPLIERS INTERAL IA THE SUPPLIER HAS STATED THAT GOODS SHOULD BE CREDITED IN THE BOOKS I N A PARTICULAR NAME OTHER THAN THE SUPPLIER'S NAME. IN ONE SUCH LE TTER FILED BY THE APPELLANT THE LETTER HEAD IS THAT OF OM TRADIN G CO. WITH THE ADDRESS SIMPLY MENTIONED AS 'PARBHANI'. THE LETTER MENTION THE TRUCK NUMBER QUANTITY OF GOODS AND REQUESTED THAT THE GOODS SHOULD BE CREDITED TO THE ACCOUNT OF 'BHIMASHANKAR DHULE'. THE APPELLANT HAS ISSUED A GOODS RECEIPT NOTE MENTIONIN G SUPPLIER'S NAME AS BHIMASHANKAR DHULE AND THE BROKER'S NAME AS DINESH TRADING CO. ANOTHER BILL ISSUED BY OM TRADING CO. I S FOR 10.0 BAGS. THERE WERE SEVERAL SUCH BILLS FOR MATERIAL FROM OM TRADING CO. CREDITED TO BHIMASHANKAR DHULE. SIMILARLY THERE IS A LETTER FROM KOMAL TRADING CO COMMISSION AGENT OF PARBHANI WHO SENT 100 BAGS WITH A REQUEST THAT THE CREDIT SHOULD BE MADE IN THE NAME OF BHIMASHANKAR DHULE. THE GOODS RECEIPT NOTE HAS BEEN ISSUED IN THAT NAME. ANOTHER INSTANCE HAS BEEN GIVE N WHERE GOODS HAVE BEEN SUPPLIED WITH AN INSTRUCTION THAT CREDIT TO GIVE IN THE NAME OF BAJIRAO BARKU. THERE IS NO ADDRESS OF BAJIR AOS BARKU MENTIONED IN THE LETTER OR BILLS. IT REVEALS THAT T HE COMMISSION AGENT SENT THE MATERIAL WHICH THEY HAVE COLLECTED F ROM THE VARIOUS FARMERS TO THE APPELLANT. IN MANY INSTANCES THE IN VOICES RAISED BY THE ACTUAL SUPPLIERS CARRY THE INSTRUCTION THAT CRE DIT SHOULD BE SHOWN IN THE NAME OF ANOTHER PERSON. THE ADDRESS ET C. OF SUCH PERSON WERE NOT GIVEN. THE APPELLANT IN SUCH SITUA TION WOULD NOT BE IN A POSITION TO FURNISH THE ADDRESS OF THE SUPP LIERS. 4.2.1 IN THE REMAND REPORT 37 WITNESSES HAVE BEEN CATEGORIZED INTO 4 CATEGORIES I II III IV. THE FIRST CATEGORY C ONSISTS OF THE PERSONS WHO HAVE CONFIRMED THEIR STATEMENT GIVEN TO THE ASS ESSING OFFICER AT THE TIME OF ASSESSMENT STATING THAT NO AMOUNT WA S RECEIVABLE FROM THE APPELLANT ON 31/03/04. HOWEVER THESE PER SONS HAVE NOT BEEN ABLE TO PRODUCE ANY DOCUMENTS EXCEPT IN THE CA SE OF SHANKAR UTTARWAR TO SUPPORT THEIR VERSION. NEITHER OF THEM HAS GIVEN DETAILS OF THE DATES AND THE AMOUNTS ACTUALLY RECEIVED IN C ASH OR BEARER CHEQUE. AS REGARDS PAYMENTS BY BEARER CHEQUES THE ASSESSING OFFICER HAD CONCLUDED THAT THE SYSTEM OF BEARER CHE QUES WAS USED BY THE APPELLANT TO SHOW BOGUS BOOK ENTRIES. ACCORD ING TO THE BOOKS CREDITORS AS ON 31/3/04 HAD BEEN PAID MOSTLY DURING THE NEXT FINANCIAL YEAR. THE ASSESSING OFFICER FOUND TH AT PAYMENTS WERE MOSTLY BY BEARER CHEQUES. THE SIGNATURE OF AN EMPLOYEE SHRI ANIL CHAUGULE WAS FOUND ON THE BACK OF THE BEARER C HEQUE. IT WAS INFERRED BY THE ASSESSING OFFICER THAT THE MONEY WH ICH HAD BEEN WITHDRAWN FROM THE BANK THROUGH THE BEARER CHEQUE H AD ACTUALLY NOT BEEN PAID TO THE FARMERS BUT COLLECTED BY THE E MPLOYEE OF THE COMPANY. THE ALLEGATION OF THE ASSESSING OFFICER IS THAT THE SO CALLED CREDITOR HAD ALREADY BEEN PAID OF BY CASH AF TER SUPPLY OF GOODS. THE BOGUS CREDIT IN THEIR NAME HAD HOWEVER B EEN ALLOWED TO CONTINUE IN THE BOOKS AND SQUARED UP BY ISSUE OF BE ARER CHEQUES IN THEIR NAMES IN THE NEXT YEAR. THIS CONCLUSION FA ILED IN THE FACE OF THE STATEMENT OF THE WITNESSES THAT THEY HAVE RECEI VED MONEY IN THE FORM OF CASH OR BEARER CHEQUE. THE CONCLUSION I S FURTHER WEAKENED BY THE LACK OF ANY EVIDENCE OR DETAILS OF PAYMENTS RECEIVED BY THE PERSONS WHO HAD DEPOSED THAT THERE WAS NO OUTSTANDING AS ON 31/3/04. THE ASSESSING OFFICER IN THE REMAND REPORT HAS SPECIFICALLY MENTIONED TWO CASES I.E. SH RI SHANKAR UTTARWAR AND SHRI SHARAD DILWALE. IT IS MENTIONED T HAT SHRI UTTARWAR HAD FILED A COPY OF THE ACKNOWLEDGEMENT SH OWING RECEIPT OF AMOUNT OF RS.1000/- AS ADVANCE TO GOODS SUPPLIED ON 26/10/03. THE PAPER ALSO SHOWED THAT THE BALANCE PA YMENT OF RS.33 560/- WAS RECEIVED ON.1/11/03. IN THE BOOKS H OWEVER SHRI SHANKAR UTTARWAR REMAINED A CREDITOR AS ON 31/3/04 AND THE CREDIT WAS PAID BY ISSUE OF BEARER CHEQUE DTD.22/05 /04. THIS PAPER WAS FOUND AS THE ONLY EVIDENCE OF BOGUS CREDI TORS CARRIED IN THE BOOKS ON ACCOUNT OF PURCHASES. THE ABOVE EVIDE NCE HAS ONE DEFECT I.E. IT DOES NOT BEAR THE NAME OR SIGNATURE OF ANY AUTHORIZED PERSON OR EMPLOYEE OF THE COMPANY. IT ONLY BEARS SI GNATURE OF SHRI PRADIP UTTARWAR HIMSELF WHO HAS FILED COPY OF THE R ECEIPT. SECONDLY THE LETTER HAS BEEN FILED BY SHRI SHANKAR UTTARWAR FATHER OF PRADIP UTTARWAR. SIGNATURE OF SHRI PRADI P UTTARWAR HAS NOT BEEN VERIFIED. IT IS NOT EXPLAINED WHY SHRI SH ANKAR UTTARWAR HAS APPEARED TWICE BEFORE THE ASSESSING OFFICER ON BEHALF OF SHRI PRADIP UTTARWAR. IT WAS PARTICULARLY NOTED THAT AT PAGE 11 OF THE REMAND REPORT DEALING WITH WITNESSES IN C ATEGORY-4 THE NAME OF PRADIP SHANKAR. UTTARWAR AND PRADIP TRADIN G CO. HAVE BEEN DEALT WITH. IT IS STATED THEREIN THAT SHR I SHANKAR UTTARWAR APPEARED ON BEHALF OF THE ABOVE TWO E NTITIES. HE WAS HOWEVER NOT EXAMINED IN CONNECTION WITH THE TRANSAC TIONS IN THE NAME OF SHRI PR : ADIP UTTARWAR AND PRADIP TRADING CO. FOR THE REASON THAT HE WAS NOT HOLDING ANY AUTHORITY FROM H IS SON SHRI PRADIP UTTARWAR. ACCORDING TO THE ASSESSING OFFIC ER SHRI SHANKAR UTTARWAR WAS NOT ENTITLED TO DISCUSS THE TRANSACTIO NS OF APPELLANT COMPANY WITH PRADIP UTTARWAR AND PRADIP TRADING CO. THE ABOVE RECEIPT FILED BY SHRI SHANKAR UTTARWAR DIMINISHES I TS EVIDENTIARY VALUE. THE RECEIPT IS OF A TRANSACTION OF THE APPEL LANT WITH SHRI PRADIP SHANKAR UTTARWAR AND NOT SHRI SHANKAR UTTARW AR. WHILE THE AO HAS RELIED GREATLY ON THIS PIECE OF EVIDENCE HE HAS REFRAINED FROM QUESTIONING SHRI SHANKAR UTTARWAR ON THE TRANS ACTIONS OF SHRI PRADIP UTTARWAR AND PRADIP TRADING CO. SO NO CREDIBILITY COULD BE ATTACHED TO RIGHTLY OBSERVED BY CIT(A). 4.2.2 THE OTHER WITNESS RELIED BY ASSESSING OFFI CER IS SHRI SHARAD DILWALE WHO HAD STATED THAT HE HAD RECEIVED PAYMENT WITHIN 10 DAYS AND MODE OF PAYMENT WAS USUALLY CASH OR BEARER CHEQUE. SHRI DILWALE HAD CHANGED HIS STAND TIME AND AGAIN. IN THIS BACKGROUND IT WAS CONCLUDED THAT THE WITNESS W AS NOT TELLING THE TRUTH. MOREOVER HE HAD SIMPLY GIVEN A STATEMEN T WITHOUT GIVING ANY DETAILS OF THE MODE IN WHICH THE PAYMENT WAS RECEIVED THE DATE OF RECEIPT OF AMOUNT AMOUNT RECEIVED ETC. AS STATED ABOVE THE WITNESS HAS CHANGED HIS STAND THREE TIMES FOR W HICH HE SHOULD BE TREATED AS UNRELIABLE OBSERVED BY CIT(A). 4.2.3 CATEGORY 2 CONSISTED OF WITNESSES WHO ACCOR DING TO THE ASSESSING OFFICER CONFIRMED THEIR EARLIER STATEMENT S FILED IN DECEMBER 06 BUT WERE FOUND CONFUSED ABOUT THE DATES OF TRANSACTION GOODS SUPPLIED PAYMENT RECEIVED ETC. ACCORDINGLY THE ASSESSING OFFICER CONCLUDED THAT THE PAYMENTS W ERE RECEIVED IMMEDIATELY AFTER THE TRANSACTION AND THEREFORE IT COULD BE ASSUMED THAT AS ON 31/03/04 THERE WAS NOTHING OUTS TANDING. ABOVE WITNESSES HAD GIVEN LETTERS TO THE ASSESSING OFFICER IN DECEMBER 06 INTERALIA STATING THAT THERE WAS NOTHIN G OUTSTANDING ON 31/03/04 BUT IN THE COURSE OF REMAND PROCEEDINGS THEY COULD NOT ESTABLISH THAT THERE WAS NO AMOUNT OUTSTANDING AS ON 31/03/04. SHRI DALE ONE OF THE WITNESS STATED THAT GOODS WERE SUPPLIED IN DECEMBER AND PAYMENTS RECEIVED WITHIN 2-3 MONTH. SINCE THE SUPPLY WAS IN DEC. 2003 IT COULD NOT BE SAID WITH CERTAINTY THAT THERE WAS NO BALANCE OUTSTANDING AS ON 31/03/04. THE OTHER TWO WITNESSES SHRI TELI AND MANE HAD STAT ED THAT PAYMENT OF GOODS WAS MADE WITHIN 8-10 DAYS BUT IN C ROSS EXAMINATION IT COULD NOT ESTABLISHED THAT THERE WA S NO BALANCE OUTSTANDING AT THE END OF THE YEAR. ONE SHRI DURGUL E HAD STATED IN CROSS EXAMINATION THAT HE HAD NOT ATTENDED ON 12/12 /06 AND LETTER DTD. 12/ 12/06 WAS NEITHER SIGNED NOR WRITTE N BY HIM. IN THIS BACKGROUND CIT(A) CONCLUDED THAT THE ASSESSIN G OFFICER IS NOT CORRECT IN CONCLUDING THAT WITNESS HAD CONFIRMED TH AT THE STATEMENT FILED IN DECEMBER 06 WAS CORRECT. IN SHO RT IT COULD NOT BE SAID THAT THE PERSONS IN CATEGORY-2 HAD CONFIRME D THEIR LETTERS FILED IN DECEMBER 06. WHILE ONE HAD STATED THAT H E HAD NOT FILED SUCH STATEMENT THE OTHERS HAD SUBSEQUENTLY IN THE REMAND PROCEEDINGS NOT CONFIRMED THE STATEMENTS FILED BEFO RE THE ASSESSING OFFICER. THESE FOUR WITNESSES HAVE NEITHE R DEPOSED IN FAVOUR NOR AGAINST THE APPELLANT. SO NO CREDIBILIT Y COULD BE ATTACHED TO IT; OBSERVED BY CIT(A). 4.2.4 CATEGORY-3 CONSISTS OF SIX WITNESSES WHO HA VE DEPOSED IN FAVOUR OF THE APPELLANT. THE ASSESSING OFFICER HAS ACCEPTED THREE OF THEM SUCH AS SHRI RANJITSINGH PATIL SHRI CHANDRAKA NT DUDHAL AND SHRI RAMDAS MANE AS RELIABLE WITNESSES. REGARDI NG THE OTHER THREE THE ASSESSING OFFICER HAS STATED THAT SHRI S ANJAY TAKALE APPEARED WITHOUT SUMMONS BEING SERVED ON HIM AND TH EREFORE HE WAS A TUTORED WITNESS. AS REGARDS SHRI SATYAWAN SHE TE IT IS STATED THAT NO RECORDS WERE MAINTAINED BY HIM TO SUBSTANTI ATE HIS STATEMENT AND THEREFORE IT COULD NOT BE TREATED AS RELIABLE. FOR ABOVE REASONS ASSESSING OFFICER DID NOT BELIEVED T HEIR VERSION WHICH WAS NOT FOUND JUSTIFIED ACCORDING TO CIT(A). 4.2.5 CATEGORY-4 CONSISTS OF SEVEN PARTIES WHO _DI D NOT APPEAR DESPITE SUMMONS BEING SERVED. THIS INCLUDES SHRI PR ADIP UTTARWAR AND PRADIP TRADING CO. WHICH PARTIES WERE DISCUSSED EARLIER IN THIS ORDER. ONE PARTY I.E. VYANKATESH TRADING CO. HAD FI LED A LETTER INTERALIA STATING THAT DURING THE YEAR THERE WAS NO TRANSACTION WITH THE APPELLANT. IN ABOVE BACKGROUND CIT(A) FOUND T HAT THERE ARE 19 WITNESSES WHO HAD CONFIRMED EARLIER STATEMENTS BEFO RE HIM THAT THERE WAS NO AMOUNT OUTSTANDING AND SIX PERSONS WHO DEPOSED IN FAVOUR OF THE ASSESSEE BY RETRACTING FROM THEIR EAR LIER STATEMENTS BEFORE THE ASSESSING OFFICER. THE WITNESSES AT CATE GORY-2 AND 4 COULD NOT BE TAKEN INTO ACCOUNT. ACCORDING TO THE A SSESSING OFFICER THE WITNESSES WHO DID NOT APPEAR HAD IN A NY CASE FILED LETTERS CONFIRMING THAT THERE WAS NO BALANCE OUTSTA NDING BEFORE THE ASSESSING OFFICER EARLIER. THESE LETTERS COULD NOT BE TAKEN AS EVIDENCE SINCE THE SIGNATURE ON THE LETTERS WAS NOT CONFIRMED. THE APPELLANT WAS NOT GIVEN AN OPPORTUNITY TO DEFEND IT SELF AGAINST THE ALLEGATION. AS REGARDS RELIABILITY AND QUALITY OF E VIDENCE THE PARTIES IN CATEGORY-1 AS WELL AS IN CATEGORY-3 ARE AT THE S AME LEVEL EXCEPT THAT VIEW OF THE PERSONS IN CATEGORY-3 ARE ADMITTED LY REPUTED PERSONS ACCORDING TO THE ASSESSING OFFICER. NONE O F THE WITNESSES HAVE GIVEN ANY EVIDENCE TO SUPPORT THEIR STATEMENTS . THE ADDITION IS PRIMARILY BASED ON THE LETTERS OBTAINED FROM 37 CREDITORS DISCUSSED ABOVE. AFTER DETAILED INVESTIGATION INTO THE MATTER ONLY 19 CREDITORS COULD BE SAID TO HAVE 'STOOD BY THEIR STATEMENTS. EVEN THESE 19 CREDITORS DO NOT HAVE ANY EVIDENCE TO SUPP ORT THEIR STATEMENTS. THEY HAVE GIVEN A LAME EXCUSE THAT WHAT EVER DOCUMENTS THEY HAD HAVE BEEN DESTROYED AFTER THE YE AR WAS OVER. THE SUMMONS SERVED ON THESE PERSONS AND THEY WERE D IRECTED TO PRODUCE SPECIFIC DETAILS VIZ. PROOF OF IDENTITY AND CAPACITY TO ADVANCE THE SUM OF MONEY DETAILS OF SOURCES OF INC OME CASH BOOK LEDGER SALE BILLS AND BANK PASS BOOK ACCOUN T EXTRACT IN THEIR BOOKS OF THE APPELLANT COMPANY. THERE IS NO M ENTION WHETHER ANY OF THE 37 CREDITORS WHO APPEARED HAVE PRODUCED ANY ONE OR ALL OF THE ABOVE DOCUMENTS. THERE IS NO DISCUSSION OF SOURCE OF INCOME. ASSUMING THAT BOOKS HAVE NOT BEEN MAINTAINE D THEY SHOULD HAVE ATLEAST PRODUCED BILLS OF SALE PROOF O F RECEIPT BANK PASS BOOK OR ANY OTHER DOCUMENT TO PROVE THEIR CON TENTION. IN THIS BACKGROUND CIT(A) OBSERVED THAT THE ABOVE DOCUMENT S WERE NEITHER INSISTED UPON NOR PRODUCED. 4.2.6 THE ADDITION HAS BEEN MADE IN RESPECT OF 283 CREDITORS COMPRISING OF 315 CREDIT ENTRIES. IT WAS CLARIFIED BY THE ASSESSING OFFICER IN THE REMAND REPORT THAT THE ADDITION HAS BEEN MADE IN RESPECT OF CREDITORS FALLING IN THE FOLLOWING CATEG ORIES. CATEGORY A: NO ADDRESS HAD BEEN PROVIDED BY THE ASSESSEE. AGGREGATE CREDIT AMOUNT RS.7 26 12 137/- CATEGORV B: NUMBER OF ACCOUNTS : 58. AGGREGATE CREDIT AMOUNT RS.3 26 66 860/- CATEGORY C: INCOMPLETE ADDRESSES. LETTERS RETURNED BY POSTAL AUTHORITIES. NUMBER OF ACCOUNTS : 56. AGGREGATE CREDIT AMOUNT RS.3 11 60 832/- CATEGORY D: REPLY RECEIVED STATING NO OUTSTANDING AS ON 31/03/04. NUMBER OF ACCOUNTS : 09. AGGREGATE CREDIT AMOUNT RS.1 41 83 970/- CATEGORY E: SUMMONS SERVED NO RESPONSE. NUMBER OF ACCOUNTS : 72. AGGREGATE CREDIT AMOUNT RS.3 55 13 391/- CATEGORY F: CREDITORS VERIFIED IN REMAND PROCEEDINGS. NUMBER OF ACCOUNTS : 45. AGGREGATE CREDIT AMOUNT RS.1 70 70 397/- 4.2.7 IN ADDITION TO THE ABOVE CATEGORIES THERE I S ANOTHER CATEGORY AT PAGE-17 OF THE REMAND REPORT UNDER THE HEADING ' CREDITORS CONFIRMED AMOUNT OUTSTANDING'. ENTRIES-7 AMOUNT CR EDITED: 18 99 014/-. THE APPELLANT POINTED OUT CERTAIN MIS TAKES IN EACH CATEGORY IN THE CHARTS ANNEXED TO THE REMAND REPORT . THESE ARE AS UNDER: CATEGORY NAME AMT. (LACS) REMARKS A G.BAHETI 4.24 G.BAHETI 1.92 B G.BAHETI 2.05 IT IS MENTIONED THAT PERSON DEAD C SUNIL SHAH 57.12 INCOMPLETE ADDRESS D S. PATIL 24.61 DIED S.P. PATIL 1.85 PAID BY BEARER CHEQUE SUIYAKANT PATIL 0.74 CREDITWOR THINE SS RIOT PROVED SAINATH TRADERS 45.04 GENUINENESS OF TRANSACTION DOUBTFUL. S.S.VITTHAL 1.75 DID NOT CONFIRM CREDIT BALANCE 4.2.8 CATEGORY B COMPRISES OF PERSONS IN WHOSE CAS ES SUMMONS WERE RETURNED ON THE GROUND THAT NO PERSON WAS RESI DING AT THE GIVEN ADDRESS. IN THE CASE OF GOVINDPRASAD BAHETI IT IS MENTIONED THAT THE PERSON HAD EXPIRED AND HIS SUCCESSOR ATTEN DED BEFORE THE ASSESSING OFFICER AND THEREFORE THIS CREDITOR CANNO T BE PLACED IN CATEGORY: B. 4.2.9 CATEGORY C: IN THE CASE OF SUNIL SHAH THE A DDRESS IS MENTIONED AS MARKET YARD ISLAMPUR. SHRI SUNIL SHA H HAS GIVEN A STATEMENT THAT THE CREDIT AGAINST HIM WAS OUTSTANDI NG ON 31/03/04. SHRI SUNIL SHAH HAD FILED RETURN OF INCOM E IN SANGLI. HIS CASE HAD BEEN TAKEN UP FOR SCRUTINY. SHRI SUNIL SHAH PROCURED SOYABEEN FROM THE FARMERS IN THE NEARBY AREA OF SAN GLI AND SUPPLIED TO THE APPELLANT. PURCHASES DISPATCHES AN D PAYMENTS TO THE SUPPLIERS WERE MADE THROUGH HIM. IN THE SCRUTIN Y ASSESSMENT IN HIS CASE THE-ITO WD.2(2) SANGLI EXAMINED HIM A S WELL AS 18 FARMERS WHO HAD SUPPLIED GOODS TO APPELLANT. THE FA RMERS CONFIRMED THAT THEY RECEIVED PAYMENTS THROUGH SHRI SUNIL SHAH AFTER 4-5 MONTHS. THE AO HAS ACCEPTED THE INCOME B Y WAY OF COMMISSION DECLARED BY SHRI SUNIL SHAH IN THE ORDE R U/S.147. 4.2.10 CATEGORY D CONSISTS OF PERSONS FROM WHOM RE PLIES WERE RECEIVED THAT THEY HAD NO OUTSTANDING BALANCE WITH THE COMPANY AS ON 31/03/04. IN THE CASE OF SHRIPATI PATIL HOWEV ER THE PERSON HAD EXPIRED. IN THE CASE OF S.P.PATIL IT IS MENTIO NED THAT THE PAYMENT WAS THROUGH BEARER CHEQUE. IN THE CASE OF SURAYAKANT PATIL IT WAS STATED THAT CREDITWORTHINESS WAS NOT P ROVED. IN CASE OF SAINATH TRADERS IT IS MENTIONED THAT GENUINENESS O F TRANSACTION WAS DOUBTFUL. IN CASE OF PERSONS LISTED ABOVE UNDER CATEGORY-D IT IS NOT CLEAR FROM THE REMARKS ABOVE REPLY THAT NO A MOUNTS OUTSTANDING AS ON 31/03/04. THEREFORE THEY WERE WRO NGLY PLACED IN THE CATEGORY. IN THE CASE OF SAINATH TRADERS IT IS MENTIONED THAT GENUINENESS OF TRANSACTION IS DOUBTFUL. IT WAS OBSE RVED THAT THE WORD USED IS 'DOUBTFUL' WHICH MEANS THERE IS NO DEF INITE FINDING ON THE GENUINENESS OF THE TRANSACTION. SECONDLY IT HA S BEEN POINTED OUT BY THE APPELLANT THAT THE PARTY HAD BEEN PAID T HE AMOUNT BY WAY OF CROSSED CHEQUE ISSUED ON HDFC BANK. COPY OF THE CHEQUE HAS BEEN SUBMITTED. IN ADDITION TO THE ABOVE IN TH E CASE OF NATRAJ TIN MANUFACTURING CO. ALSO THE PAYMENT IS ALSO BY WAY OF CROSSED CHEQUE DRAWN ON HDFC BANK. 4.3 IN VIEW OF ABOVE ANALYSIS CIT(A) OBSERVED THAT THE ADDITION IN THE CASE OF THE FOLLOWING CREDITORS WAS NOT JUST IFIED. NAME AMT.(LACS) SHRI SUNIL SHAH RS.57.12 SAINATH TRADERS RS.45.04 NATRAJ TIN MANUFACTURING CO. RS. 7.64 . S.PATIL RS.24.61 S.P.PATIL RS. 1.85 SURYAKANT PATIL RS. 0.74 VITTHAL RS. 1.75 G.S.BAHETI RS. 4.24 G.S.BAHETI RS. 2.05 RS.146.97 PERSONS CONFIRMED CREDIT RS.18.99 RS.165.96 4.3.1 CATEGORY A B AND C ARE SIMILAR IN AS MUCH AS IN THESE CASES ADDITION HAS BEEN MADE AS; THE APPELLANT COUL D NOT FURNISH THE COMPLETE AND CORRECT ADDRESS AND THEREFORE SUM MONS COULD NOT BE SERVED. CATEGORY E IS WHERE SUMMONS WAS SER VED BUT THERE WAS NO COMPLIANCE. CATEGORY D IS STATED TO BE OF THOSE PERSONS WHO REPLIED THAT THERE WAS NO CREDIT BALANCE OUTSTA NDING AS ON 31/03/04. THE TOTAL AMOUNT OF CREDIT IN THIS CATEGO RY IS OF RS.1.41 CRORES OUT OF WHICH RS.1.23 CRORES HAS BEEN WRONGLY PLACED IN THIS CATEGORY AS DISCUSSED ABOVE. THERE ARE ONLY 4 PERSO NS IN CATEGORY D WHO HAVE ACTUALLY REPLIED INTERALIA STATING THAT THERE WAS NO AMOUNT OUTSTANDING. THEY ARE AS UNDER: D. BEDAGE RS. 32 968/- K.RAGHUNATH & SONS RS.1 28 426/- KETKI TRADING RS.3 87 388/- SANJAY S. PATIL RS. 78.300/- RS.17 82 925/- 4.3.2 OTHER PERSONS WHO HAVE CONFIRMED THE CRE DIT ENTRIES OUT OF 37 PERSONS IN CATEGORY F ARE AS UNDER: 1) J.G.BAHETI RS.1 84 438/- 2) D.D.SHETE RS.1 72 444/- 3) S.BHARADIA RS.2 05 764/- 4) K.PAWAR RS.3 83 434/- 5) G.KOTALWAR RS.7 86 344/- 6) E.DHONDE RS.2 22 544/- 7) RAHATKAR VITHAL B. RS.3 94 601/- 8) MOTARWAR KIRAN N. RS.1 93 171/- 9) SHAIKHMOINUDDIN RS.2 04 393/- OF ASHA TRADING. 10)WADAMWAR MURLIDHAR G. RS.7 38 139/- 11) SHANKAR VENKATI UTTARWAR RS.2 08 442/- 12)SURYAKANT V.PALIMKAR RS.2 10 000/- 13)KALPESH D. SHAH SHAH & CO. RS.3 47 711/- 14)SUNILB. PATIL RS.3 59 412/- 15)SHARAD DILWALE RS.3 39 538/- 16)DUTTATRAYA M.NISHANDAR RS. 35 963/- 17)MARUTI K.KSHIRSAGAR RS. 27 428/- 18)GAJANAN V. PATIL RS.1 46 780/- 19)VILAS SHETE RS.3.84.543/- RS.55 45 089/- 4.3.3 IT WAS OBSERVED BY CIT(A) THAT THE CREDITORS INVOLVING TOTAL CREDIT AMOUNTING TO RS.73 28 014/- (5545089+1782925 ) HAVE CONFIRMED THAT NO CREDIT WAS OUTSTANDING AS ON 31/0 3/04. THIS AMOUNT OF CREDIT IS FICTITIOUS. IN COMPARISON THE FOLLOWING PERSONS HAVE DEPOSED THAT AMOUNTS WERE ACTUALLY OUTSTANDING AS ON 31/03/04. 1) SANJAY.TAKALE RS. 60 035/- 2) RANJITSINGH PATIL RS.3 36 376/- 3) SATYAWAN SHETE RS.1 30 664/- 4) CHANDRAKANT DUDHAL RS.7 03 823/- 5) RAMDASMANE RS. 42 430/- 6)NIVRUTTI BHISE RS. 12.184/- 7) BHIKAJI TUKARAM PATIL RS.1 63 778/- 8) FAIYAZ BAGWAN RS.5 47 143/- 9) GANESHTRADING RS.1 90 871/- 10)OMKAR KHURAPE RS.1 65 687/- 11) VIJAYALAXMI TRADERS RS. 33 379/- 12) VIJAYALAXMI TRADERS RS. 33 242/- 13) NATRAJ TIN MANUFACTURING CO RS.7 64 916/- 14) SUNIL SHAH RS. 57.12 LACS RS.88 96 526/- 4.3.4 THE AMOUNT OF CREDIT THAT HAS BEEN CONFIRMED IS ACTUALLY SLIGHTLY MORE THAN THE AMOUNT OF CREDIT WHICH HAS B EEN DENIED ALTHOUGH THE NUMBER OF CREDITORS THAT HAVE CONFIRME D CREDITS IS SLIGHTLY LOWER AT 14 AGAINST (19+4) 23. 4.3.5 THE AGGREGATE ADDITIONS MADE BY TREATING THE CREDITS AS BOGUS HAS BEEN CATEGORIZED FROM A TO F BY THE ASSES SING OFFICER IN THE REMAND REPORT. CATEGORY A B AND C WHICH ACCOU NT FOR ALMOST 14 CRORES OUT OF TOTAL 18 CRORES OF CREDITORS TREAT ED AS BOGUS WERE FOUND SIMILAR BY THE ASSESSING OFFICER IN REMAND RE PORT. THE APPELLANT COULD NOT PROVIDE PROPER AND UPDATED ADDR ESSES OF THE PERSONS IN THESE CATEGORIES. IT IS AN ESTABLISHED PRINCIPLE THAT THE BURDEN IS ON THE APPELLANT TO PROVE THE GENUINENESS OF THE CREDIT GENUINENESS OF TRANSACTION IDENTITY AND THE CREDIT WORTHINESS OF THE CREDITORS. ACCORDING TO THIS PRINCIPLE THE B URDEN WAS ON THE APPELLANT TO SATISFY ABOVE CONDITIONS WITH REGARD T O EACH CREDITOR BEING CARRIED IN ITS BOOKS. INABILITY OF THE APP ELLANT TO DO SO COULD RESULT IN THE CREDIT BEING TREATED AS UNEXPLA INED CASH CREDIT U/S.68. 4.3.6 IN THE CASE OF THE APPELLANT THE SITUATION WAS FOUND BY CIT(A) A LITTLE DIFFERENT IN AS MUCH AS THESE CREDI TORS ARE MOSTLY SMALL FARMERS. THE APPELLANT HAS NO ACTUAL CONTR ACT WITH THE CREDITORS THEMSELVES. THE MATERIAL IS ARRANGED THR OUGH BROKERS. THE BROKERS OF THE COMMISSION AGENT PROCURE THE MAT ERIAL FROM THE FARMERS AND SUPERVISE THE DELIVERY OF THE SAME TO T HE APPELLANT. ALTHOUGH THE PAYMENTS ACCORDING TO THE APPELLANT A RE DONE DIRECTLY TO THE SUPPLIERS FOR THE MATERIAL PURCHASE THE AGENT OR THE BROKER IS REQUIRED TO IDENTIFY THE SUPPLIER. THIS I S IN THE CASE OF THE CASH AS WELL AS CREDIT PURCHASES. THE APPELLANT HAS PRODUCED A NUMBER OF LETTERS SENT BY THE SUPPLIERS REQUESTING THAT THE BILLING SHOULD BE MADE IN SOME OTHER NAME FOR REASONS NOT UNDERSTOOD. THE MATERIAL IS SENT BY A PARTICULAR PARTY FOR INST ANCE OM TRADING CO. BUT THE BILLING IS MADE IN THE NAME OF ANOTHER PARTY E.G. BHIMASHANKAR DHULE ON THE REQUEST OF THE PARTY SEND ING THE GOODS. THE APPELLANT HAS PRODUCED NUMBER OF LETTERS FROM THE SUPPLIERS TO THIS EFFECT. THE CREDITOR AS PER TH E BOOKS IS BHIMASHANKAR DHULE. THE ADDRESS OF THE PARTY IN T HE APPELLANT'S BOOKS IS WHAT WAS GIVEN IN THE LETTER. IN SUCH CA SES IT WOULD BE UNREASONABLE TO EXPECT THE APPELLANT TO FURNISH C OMPLETE AND CORRECT ADDRESSES OF EACH AND EVERY CRED ITOR. THE APPELLANT HAS DISCHARGED ITS BURDEN BY PROVIDING THE ADDRESS WRITTEN IN THE BOOKS. IT CANNOT BE HELD RESPONSIBLE IN ALL CASES WHERE LETTERS HAVE BEEN RETURNED DUE TO INCOMPLETE ADDRESS. ASSUMPTI ON THAT ALL THE CREDITORS LISTED IN CATEGORY A B AND C ARE BOGUS W AS NOT FOUND JUSTIFIED BY CIT(A). 4.3.7 CATEGORY F CONSISTS OF 37 CREDITORS WHO HAVE BEEN SUBJECT TO DETAILED EXAMINATION AND CATEGORY D CONS ISTS OF PERSONS WHO HAVE DEPOSED IN FAVOUR OF THE APPELLANT. THE CR EDITORS IN THESE CATEGORIES HAVE BEEN DISCUSSED IN DETAIL IN EARLIER PART OF THIS ORDER. CATEGORY E CONSISTS OF CREDITORS WHO HAVE BE EN WITH THE SUMMONS BUT HAVE NOT BOTHERED TO COMPLY WITH THE SA ME. THIS CATEGORY CONSISTS OF TOTAL CREDIT OF RS.3.55 CRORES . IN THIS BACKGROUND CIT(A) OBSERVED THAT THE APPELLANT HAS P ROVIDED CORRECT ADDRESSES AND SUMMONS HAVE BEEN SERVED. CIT (A) ALSO OBSERVED THAT THE SUMMONS HAD BEEN ISSUED ON THE RE QUEST OF THE APPELLANT APPREHENDING THAT THE CREDITORS WILL NOT ATTEND UNLESS FORCED BY THE DEPARTMENT. IT IS ALSO OBSERVED THAT MOST OF THESE CREDITORS WERE FROM PARBHANI/NANDED AREA. THE APPEL LANT HAD SOME DIFFERENCE WITH THE SUPPLIERS OF THIS AREA REG ARDING THE PAYMENT ISSUES. ACCORDING TO THE PROVISIONS OF SECT ION 131 THERE IS A PENALTY FOR NON COMPLIANCE WHICH IS IMPOSED UNDER SECTION 272A OF THE ACT. THERE IS NOTHING ON RECORD THAT PENALTY U/S.272A HAS BEEN INITIATED AGAINST ANY OF THE CREDITORS. A SUMM ONS U/S.131 HAS A LEGAL FORCE AND IS POTENT WEAPON IN THE HANDS OF THE ASSESSING OFFICER. ONCE THIS POWER HAS NOT BEEN EX ERCISED THE ASSESSING OFFICER SHOULD NOT BLAME THE APPELLANT FO R NON APPEARANCE OF THE CREDITORS OR NON COMPLIANCE TO TH E SUMMONS. THE BURDEN HAS BEEN PLACED ON THE APPELLANT FOR THE NON APPEARANCE OF THE CREDITORS AND THE CREDIT HAS BEEN TREATED AS BOGUS. CIT(A) OBSERVED THAT ONCE THE SUMMONS HAS BE EN ISSUED BY THE ASSESSING OFFICER WHO HAS SUFFICIENT POWERS TO ENFORCE COMPLIANCE THE APPELLANT SHOULD NOT BE HELD RESPON SIBLE IF THE CREDITOR DOES NOT APPEAR AND DEPOSE BEFORE THE ASSE SSING OFFICER. IN THIS BACKGROUND CIT(A) OBSERVED THAT THE WHOLESA LE DISALLOWANCE OF ALL THE CREDITORS TO -WHOM PAYMENT WAS MADE IN C ASH TREATING THEM AS BOGUS CREDITORS WAS NOT JUSTIFIABLE. CIT(A) FURTHER OBSERVED THAT THE APPELLANT HOWEVER DID NOT DESERVE CLEAN CH IT IN THIS MATTER IN VIEW OF CERTAIN OTHER PIECES OF EVIDENCE WHICH H AVE COME TO LIGHT. A NUMBER OF CREDITORS HAVE DEPOSED BEFORE THE ASSES SING OFFICER AT DIFFERENT TIMES DENYING ANY CREDIT OUTSTANDING TO B E RECEIVED FROM THE COMPANY. 4.3.8 TAKING ALL FACTS AND CIRCUMSTANCES INTO CON SIDERATION CIT(A) OBSERVED THAT WHILE THE WHOLESALE ADDITION OF ALL T HE CREDITORS WHICH 'HAVE BEEN SHOWN IN THE BOOKS AS OUTSTANDING ON 31/03/04 AND PAID IN CASH SUBSEQUENTLY IS NOT JUSTIFIED I T IS UNMISTAKABLE THAT THE APPELLANT HAS IN CERTAIN CASES 'MADE PAYM ENTS IN CASH WHILE THE CREDIT AMOUNT SHOWN AGAINST THE SUPPLIERS IN THE BOOKS HAS NOT BEEN SQUARED UP AND ALLOWED TO CONTINUE. TH E ILLUSTRATIONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT OR DER WHICH HAVE BEEN SHOWN THAT IN SEVERAL CASES THE MODUS OPERANDI STATED BY THE ASSESSING OFFICER COULD NOT BE DOUBTED. AFTER ARRI VING AT THE ABOVE DECISION THE NEXT STEP WAS TO REASONABLY QUANTIFY THE AMOUNT OF SUCH BOGUS CREDITS. IT IS OBVIOUS THAT THERE HAS TO BE SOME ESTIMATION IN ARRIVING AT THIS FIGURE. THE ADDITION MADE BY THE ASSESSING OFFICER IS ALSO BASED ON ESTIMATION RELYI NG ON STATEMENT OF FEW CREDITORS. THE ESTIMATE OF THE ASSESSING OF FICER NOW HAVING BEEN PROVED ERRONEOUS ON THE BASIS OF FACTS AND CIR CUMSTANCES NARRATED IN THE EARLIER PAGES THERE WAS A NEED TO MAKE AN ESTIMATE IN A MORE RATIONAL MANNER OBSERVED BY CIT(A). 4.3.9 IN CERTAIN CIRCUMSTANCES AN ESTIMATION OF U NDISCLOSED INCOME COULD BE MADE. THE ESTIMATION IS ONLY WAY O UT IN SUCH CASES WHICH HAVE INHERENT GUESS WORK. AT THE SAME TIME GUESS WORK MUST HAVE REASONABLE NEXUS WITH MATERIAL ON RE CORD. IN SUCH SITUATION DEPARTMENT WAS ENTITLED TO TAKE INT O ACCOUNT CERTAIN ESTIMATES WHEN DOCUMENTARY EVIDENCE WAS NOT FORTHCOMING BUT AN ARBITRARY METHOD COULD NOT BE A PPLIED. THE ESTIMATE WHICH HAS BEEN MADE BY THE ASSESSING OFFIC ER WAS FUND ARBITRARY BY CIT(A) FOR THE REASONS DISCUSSED IN TH E FOREGOING PARAGRAPHS. 4.3.10 THE ASSESSMENT ORDER CONTAINS A LIST OF CRE DITORS WHOSE ACCOUNTS HAS BEEN SQUARED UP DURING THE PREV IOUS YEAR ITSELF. THIS CONTAINS 33 CREDITORS INVOLVING TOTAL CREDIT AMOUNT OF RS.2.25 CRORES. NO ADDITION HAS BEEN MADE WITH R EGARD TO THESE CREDITORS. SINCE NO ADDITION HAS BEEN MADE IT WAS P RESUMED THAT THE ASSESSING OFFICER WAS SATISFIED WITH THE GENUIN ENESS OF THE ABOVE CREDITORS AND THE CREDIT AMOUNT AND ACCEPTED THAT THE CREDITORS HAD ACTUALLY BEEN PAID ON THE DATES MENT IONED. THESE PAYMENTS COULD THEREFORE FORM A BASIS FOR ESTIMATIN G THE AVERAGE PERIOD OF CREDIT OFFERED BY THE APPELLANT TO ITS SU PPLIERS. THE APPELLANT WAS ASKED TO SUBMIT THE LIST OF THESE CRE DITORS ALONG WITH THE CREDIT PERIOD ENJOYED BY EACH CREDITOR. THE AV ERAGE CREDIT PERIOD WORKED OUT TO ROUGHLY 5 MONTHS. THE APPELLAN T WAS THEN ASKED TO SUBMIT THE SAME LIST WITH THE AVERAGE CRED IT PERIOD CALCULATED BY THE WEIGHTED AVERAGE METHOD. THE WE IGHTED AVERAGE CREDIT PERIOD ACCORDING TO THE REVISED LIST WORKED OUT TO LITTLE ABOUT 3 MONTHS. OTHER EVIDENCE OF PERIOD OF CREDIT OFFE RED BY THE APPELLANT COULD BE GATHERED FROM THE VARIOUS STATEM ENTS RECORDED OF THE CREDITORS. IN THE LETTERS SUBMITTED TO THE ASSESSING OFFICER BY 37 CREDITORS AT THE ASSESSMENT STAGE THE PERIOD OF CREDIT AS STATED BY THE CREDITORS RANGES FROM 2-15 DAYS. AT T HE REMAND STAGE THE CREDIT PERIOD AS MENTIONED IN THE STATEM ENT BY CERTAIN CREDITORS WAS AS UNDER: SHANKAR UTTARWAR 4-5 DAYS SHARAD DILWALE 10 DAYS MADAN DHALE 2-3 DAYS PANDURANG TELI 8-10 DAYS UDAY MANE 8-10 DAYS RANJIT PATIL 10-12 DAYS S.R.SHETE 3 MONTHS C.DUDHAL 10-12 DAYS RAMDAS MANE 10-12 DAYS NIVRUTTI BHISE 10-12 DAYS SUNIL SHAH 4-5 MONTHS VILAS SHETE 5 MONTHS KALPESH SHAH 5 MONTHS 4.3.11 THE CIRCUMSTANCES WERE FOUND SUCH THAT THE C REDITORS WHO HAVE GIVEN STATEMENTS ; MENTIONED DIFFERENT CRE DIT PERIODS. THE PERIOD RANGES BETWEEN ONE WEEK TO 5 MONTHS. CO NSIDERING THE EVIDENCE AT HAND A MAXIMUM PERIOD OF 3 MONTHS WAS FOUND TO BE SUFFICIENT AND A REASONABLE CREDIT PERIOD OFFERED B Y THE APPELLANT OBSERVED BY CIT(A). 4.3.12 THE PURCHASES ON CREDIT MADE BY THE APPEL LANT MONTH WISE IS AS UNDER: AUGUST 464142 SEPTEMBER 119184 OCTOBER 27312901 NOVEMBER 33255289 DECEMBER 25414330 JANUARY 14774363 FEBRUARY 7803575 MARCH 75609099 4.3.13 THE AGGREGATE CREDIT FOR PURCHASE MADE DURI NG THE MONTHS OF JANUARY TO MARCH 2004 AND WHICH WAS OUTSTANDING AS ON 31/03/04 WAS WORKED OUT TO RS.9 81 87 037/- BY CIT( A) IF THE AVERAGE CREDIT PERIOD IS TAKEN AS 3 MONTHS IT WAS FOUND THAT THE CREDITS WHICH AROSE AFTER JANUARY 2004 WOULD NOT HA VE BEEN SQUARED UP AND OUTSTANDING AS ON 31/03/04. IN THIS BACKGROUND CIT(A) ESTIMATED THAT CREDITS ARISING DURING THIS P ERIOD ARE GENUINE CREDITS WHICH HAVE BEEN SQUARED UP. THE LIST OF CR EDITORS SQUARED UP DURING THE YEAR PROVIDED A GOOD INDICATOR OF THE AVERAGE CREDIT PERIOD. THE WEIGHTED AVERAGE CREDIT PERIOD WORKED OUT TO 3 MONTHS. CREDITS OCCURRED AFTER JANUARY 01 2004 WER E THEREFORE HELD AS GENUINE. SUCH CREDIT AMOUNT AGGREGATES TO RS.9 81 87 037/-. THE ASSESSING OFFICER WAS ACCORDI NGLY DIRECTED TO REDUCE THE ABOVE AMOUNT FROM THE ADDITION MADE U /S.68 OF THE ACT. 4.4 BOTH PARTIES ARE BEFORE US. DEPARTMENT IS AGA INST DELETION OF RS.9 81 87 037/- AND ASSESSEE IS AGAINST SUSTAINING REMAINING AMOUNT OF RS.8.87 CRORES. BEFORE US THE LEARNED D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ADDITION HAS BEEN MADE TO THE EXTENT OF RS 8.87 CRORES GIVING RELIEF OF RS 9.81 C RORES. THE RELIEF HAS BEEN GIVEN ON THE BASIS OF AVERAGE CREDIT PERIO D OF 3 MONTHS AND THUS HOLDING THAT CREDITS AFTER JAN 2004 WERE HELD AS GENUINE. THESE CREDITS AMOUNT TO RS 9.81 CRORES. THIS IS AN ABSOLUTELY ARBITRARY APPROACH OF CIT(A). IT MAY BE APPRECIATED THAT THIS EXERCISE OF IDENTIFYING PARTIES TO WHOM PAYMENTS HA VE BEEN MADE OUT OF BOOKS HAS BEEN MADE THRICE ONCE BY THE ASSE SSING OFFICER THEN AT THE REMAND STAGE AND AGAIN BY THE CIT(A) HI MSELF. THERE ARE FOLLOWING CATEGORIES OF CREDITORS WHERE THE ADD ITIONS HAVE BEEN MADE: S.NO CATEGORY DESCRIPTION NO OF AMOUNT 1. A NO ADDRESS PROVIDED BY PARTY RS7.26CR 2. B SUMMONS RETURNED AS NO SUCH PERSON RESIDING AT THE GIVEN ADDRESS 58 RS 3.26 CR 3. C LE TTERS RETURNED BY POSTAL AUTHORITIES WITH REMARKS HAVING INCOMPLETE ADDRESS 56 RS3.11CR 4. D REPLY RECEIVED STATING NO OUTSTANDING AS ON 31.03.2004 09 RS 1.41 CR 5. E SUMMONS SERVED BUT NO RESPONSE 72 RS3.55CR 6. F CREDITORS VERIFIED IN THE REMAND PROCE EDINGS 45 RS. 1.70 CR 7. G CREDITORS CONFIRMED AMOUNT OUTSTANDING 07 RS 18.99 LAKHS 4.4.1 OUT OF THE ABOVE IT MAY BE SEEN THAT SOME ASSERTIONS REGARDING SPECIFIC CASES MADE BY THE ASSESSEE WERE ACCEPTED BY THE CIT(A). LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CREDITORS AT CATEGORY A-E REMAINED SUSPECT AND UNPR OVED. LD. DEPARTMENTAL REPRESENTATIVE DREW OUR ATTENTION TO T HE RAJASTHAN HIGH COURT'S DECISION AS REPORTED IN (1995) 212 ITR 390 (RAJ) WHERE IT WAS HELD THAT 'WHILE EXPLAINING THE VARIOU S CREDITS AND INVESTMENTS IT MAY BE POSSIBLE THAT THE ASSESSEE M AY BE SUCCESSFUL IN EXPLAINING SOME OF THEM BUT THAT DOES NOT BY ITSELF MEAN THAT THE ENTIRE INVESTMENTS HAS TO BE CONSIDER ED AS EXPLAINED. EVEN LAPSE OF TIME OR INABILITY OF THE A SSESSEE WOULD NOT MAKE THE UNEXPLAINED INVESTMENT AN EXPLAINED ONE. I T IS EACH AND EVERY INDIVIDUAL ENTRY ON WHICH THE MIND HAS TO BE APPLIED BY THE TAXING AUTHORITY WHEN AN EXPLANATION IS OFFERED BY THE ASSESSEE. IF NO EXPLANATION HAS BEEN OFFERED IN RESPECT OF A PAR TICULAR ENTRY THE TAXING AUTHORITY WILL BE JUSTIFIED IN COMING TO THE CONCLUSION THAT THE SAID INVESTMENT IS UNEXPLAINED. IT IS NOT THE T OTALITY OF THE CREDIT ENTRIES WHICH ARE TO BE ALLOWED OR TO BE DIS ALLOWED. THIS WORK HAS TO BE DONE ON THE BASIS OF EXPLANATION OFF ERED FOR DIFFERENT ENTRIES AND IF THE EXPLANATION OF THE ASSESSEE IS A CCEPTABLE ON THE BASIS OF THE EVIDENCE PRODUCED BEFORE THE TAXING AU THORITY THE TRIBUNAL CAN COME TO THE CONCLUSION THAT SUCH INVES TMENT IS FULLY EXPLAINED.' 4.4.2 SIMILAR VIEW HAS BEEN CLAIMED TO BE TAKEN BY ITAT AHMEDABAD IN CAS CARD FINANCE VS ACIT IN (2003) 84 ITD 1 (AHD) (THIRD MEMBER DECISION) WHEREIN SHARE APPLICATION FORMS WERE FOUND BY THE SEARCH PARTY TO HAVE BEEN FILLED IN BY THE TWO OF THE EMPLOYEES OF THE APPELLANTS AND THAT THE MANAGING D IRECTOR OF THE COMPANY AND HEAD OF THE OTHER CONCERNS HAD ADMITTED HAVING INTRODUCED MONEY PURPORTED TO BE SHARE APPLICATION MONEY AND DEPOSITS IN BENAMI NAMES THE ASSESSING OFFICER WAS JUSTIFIED IN ASKING THE APPELLANT TO ESTABLISH THE GENUINENESS O F THE ENTRIES MADE IN THE BOOKS OF ACCOUNT REGARDING THE OTHER EN TRIES. MOREOVER ADI HAD FOUND ON INVESTIGATION THAT THE P ERSONS SHOWN AS SHAREHOLDERS / DEPOSITORS WERE NOT GENUINE. SOME SHAREHOLDERS/DEPOSITORS WERE NOT FOUND TO EXIST. TH E ASSESSEE HAVING FAILED TO ESTABLISH THE GENUINENESS OF THE E NTRIES THE ASSESSING OFFICER WAS JUSTIFIED TO TREAT THE ENTRIE S AS INCOME FROM UNDISCLOSED SOURCES IN VIEW OF THE MATERIAL ON RECO RD TO ESTABLISH THAT THE PART OF THE SAME WAS NOT GENUINE.' THEREF ORE THE CIT(A) SHOULD HAVE UPHELD THE TOTAL ADDITION MADE BY THE A SSESSING OFFICER AS IT IS SEEN THAT THE ASSESSEE HAS NOT BEE N UNABLE TO DISCHARGE THE ONUS PLACED UPON HIM IN RESPECT OF CA TEGORIES A-C AMOUNTING NEARLY RS 16 CR. AND HAS BEEN FOUND TO HA VE MADE PAYMENTS OUT OF BOOKS IN RESPECT OF AT LEAST 38 PER SONS. ACCORDING TO US EVERY CASE IS DECIDED IN ITS FACTS AND CIRCUM STANCES. CIT(A) HAS CONSIDERED THE ISSUE OF CREDIT PERIOD WHICH IS SUBJECT MATTER BEFORE US. 4.4.3 S.68 69 69A 69B 69C AND 69D ARE ALL EXAM PLES OF DEEMED INCOME. A DEEMING FICTION IS A SUPPOSITION O F LAW THAT A THING IS TRUE WITHOUT ENQUIRING WHETHER IT IS SO OR NOT AND THAT IT MAY HAVE THE EFFECT OF TRUTH SO FAR AS IT IS CONSIS TENT WITH THE JUSTICE. A DEEMING PROVISION IS MADE TO INCLUDE WHA T IS UNCERTAIN OR TO IMPOSE FOR THE PURPOSE OF STATUTE AND ORDINAR Y CONSTRUCTION OF A WORD OR PHRASE. THUS A DEEMING PROVISION ENLA RGES THE MEANING OF A PARTICULAR WORD OR TO INCLUDE MATTERS WHICH OTHERWISE MAY OR MAY NOT FALL WITHIN THAT PROVISION. 4.4.4 LD. DEPARTMENTAL REPRESENTATIVE ALSO SUBMIT TED THAT IT IS CERTAIN THAT ASSESSEE DID MAKE PAYMENTS OUT OF BOOK S TO CREDITORS AND CARRIED OVER THE SUNDRY CREDITORS TO THE NEXT Y EAR WHEN THE CHEQUES ISSUED IN THEIR NAMES WERE ENCASHED BY ITS OWN ACCOUNTANT. IT IS NOBODY'S CASE THAT THIS SEQUENCE OF EVENTS DID NOT HAPPEN. EVEN BEFORE THE CIT(A) THE ASSESSEE DESPITE BEING GIVEN AMPLE OPPORTUNITY COULD NOT ESTABLISH THE PAYMENTS. IN THE END EVEN THE CIT(A) WAS CONSTRAINED TO UPHOLD THE PART ADDITION. RELIANCE IS PLACED UPON DECISIONS LAID DOWN BY HON. SC IN (1971) 82 ITR 540 (SC) & (1995) 214 ITR 801 (SC) WHERE THE THEORY OF HUMAN PROBABILITIES AND SORROUNDING CIRCUMSTANCES H AVE BEEN EMPHASIZED. IN THIS BACKGROUND LD. DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT TRIBUNAL IS ENTITLED TO DISBELIEVE A NY STORY WHICH IS PRIMA-FACIE FANTASTIC AND WHICH DOES NOT ACCORD WIT H HUMAN PROBABILITIES. 4.5 ON OTHER HAND LEARNED AUTHORIZED REPRESENTATIV E HAS RAISED VARIOUS CONTENTIONS WHICH WILL BE TAKEN CARE BY US IN PRECEDING PARA. 4.6 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD INCLUDING CASE LAWS RELIED BY BOTH THE PARTI ES WE FIND THAT ASSESSEE IS A PRIVATE LIMITED COMPANY SITUATED AT CHIMPRI IN SANGLI DISTRICT AND IS A MANUFACTURER OF STAR REFIN ED OIL UNDER THE BRAND STAR. THE TOTAL TURNOVER FOR THE YEAR WAS RS.80.33 CRORES WITH GROSS PROFIT OF RS.9.28 CRORES AT 11.5% OF THE TURNOVER. IT WAS OBSERVED BY REVENUE AUTHORITIES THAT TURNOVER OF AS SESSEE INCREASED SUBSTANTIALLY IN SUBSEQUENT YEARS FROM RS .80.00 CRORES TO RS.142.00 CRORES IN A.Y.2005-06 AND RS.125.00 CR ORES IN A.Y. 2006-07. ASSESSING OFFICER MADE ADDITION OF RS.18 68 90 938/- ON ACCOUNT OF BOGUS TRADE CREDITORS. ASSESSING OFFICE R OBSERVED THAT CREDITORS WERE CARRIED ON IN BOOKS OF ACCOUNTS FOR MORE THAN 3 MONTHS FROM OCTOBER AND NOVEMBER ONWARDS. THE CRED ITORS WERE MAINLY FOR PURCHASE OF SOYA BEEN. ON ENQUIRY WITH THE FIRM ENGAGED IN SIMILAR BUSINESS IT WAS FOUND THAT CRED IT PERIOD WAS 15-30 DAYS NORMALLY AND IN 3-5 DAYS IN CASE IMMEDIA TE PAYMENT WAS INSISTED. APART FROM THIS ASSESSING OFFICER F OUND VARIOUS DISCREPANCIES WITH REGARD TO BANKING TRANSACTIONS A ND ULTIMATELY MADE THE ABOVE SAID ADDITION. 4.6.1 IN APPEAL CIT(A) AFTER CALLING FOR A REMA ND REPORT FOUND THAT PURCHASES OF SOYA BEEN WERE MADE MAINLY THROUG H COMMISSION AGENTS BUT PAYMENT WAS MADE DIRECTLY. I N THIS SITUATION IT WAS FOUND THAT ASSESSEE WAS NOT IN A POSITION TO GIVE CREDIT DETAILS OF SUPPLIERS. IT WAS ALSO FOUND THA T ASSESSEE WAS REQUESTED TO MENTIONED DIFFERENT NAMES OF SUPPLIERS FOR REASONS BEST KNOWN TO THE SUPPLIERS. THE CONCLUSION OF ASS ESSING OFFICER WAS BASED ON 37 WITNESSES WHICH AGAIN CATEGORIZED INTO 4 CATEGORIES. FIRST CATEGORY CONSIST OF PERSONS WHO HAVE CONFIRMED THEIR STATEMENTS GIVEN TO ASSESSING OFFICER AT THE TIME OF ASSESSMENT INTER ALIA STATING THAT NO AMOUNT WAS R ECEIVABLE FROM ASSESSEE AS ON 31.03.2004. HOWEVER THESE PERSONS HAVE NOT BEEN ABLE TO PRODUCE ANY DOCUMENTARY EVIDENCE EXCEPT IN CASE OF SHRI SHANKAR UTTARWAR TO SUPPORT THEIR STAND. NEITHER O F THEM HAS GIVEN DETAILS OF DATES AND AMOUNT ACTUALLY RECEIVED IN CASH OR THROUGH BEAR CHEQUES. ACCORDING TO ASSESSING OFFIC ER THE CREDITORS AS ON 31.03.2004 IN BOOKS OF ACCOUNTS WER E MOSTLY PAID DURING THE FINANCIAL YEAR. THIS FINDING IS BASED O N CERTAIN DISCREPANCIES IN THE BANKING TRANSACTIONS WITH REGA RD TO PAYMENTS TO THE SUPPLIERS. IN OTHER CATEGORIES CONSISTING O F WITNESSES WHO ACCORDING TO ASSESSING OFFICER CONFIRMED THEIR EARL IER STATEMENTS FILED IN DECEMBER 2006 WERE FOUND CONFUSED ABOUT DATES OF TRANSACTION GOODS SUPPLIED PAYMENTS RECEIVED ETC . THROUGH THE ABOVE WITNESSES OF SECOND CATEGORY HAD GIVEN LETTER TO THE ASSESSING OFFICER IN DECEMBER 2006 INTER ALIA STA TING THAT THERE WAS NOTHING OUTSTANDING AS ON 31.03.2004 BUT IN COU RSE OF REMAND PROCEEDINGS THEY COULD NOT ESTABLISH THAT T HERE WAS ANY AMOUNT OUTSTANDING AS ON 31.03.2004. MR. DHALE ON E OF THE WITNESSES IS STATED THAT THE GOODS WERE SUPPLIED IN DECEMBER AND PAYMENTS WERE RECEIVED WITHIN 2-3 MONTHS. SINCE SU PPLY WAS IN DECEMBER 2003 IT COULD NOT BE SAID WITH CERTAINTY THAT THERE WAS NO BALANCE OUTSTANDING AS ON 31.03.2004. OTHER TWO WITNESSES SHRI DALE ONE OF THE WITNESS STATED THAT GOODS WER E SUPPLIED IN DECEMBER AND PAYMENTS RECEIVED WITHIN 2-3 MONTH. S INCE THE SUPPLY WAS IN DEC. 2003 IT COULD NOT BE SAID WITH CERTAINTY THAT THERE WAS NO BALANCE OUTSTANDING AS ON 31/03/04. THE OTHER TWO WITNESSES SHRI TELI AND MANE HAD STATED THAT PAYMEN T OF GOODS WAS MADE WITHIN 8-10 DAYS BUT IN CROSS EXAMINATION IT COULD NOT ESTABLISH THAT THERE WAS NO BALANCE OUTSTANDING AT THE END OF THE YEAR. ONE SHRI DURGULE HAD STATED IN CROSS EXAMINA TION THAT HE HAD NOT ATTENDED ON 12/12/06 AND LETTER DT. 12/12/0 6 WAS NEITHER SIGNED NOR WRITTEN BY HIM. IN THIS BACKGROUND ASS ESSING OFFICER WAS NOT CORRECT IN STATING THAT WITNESS HAD CONFIRM ED THAT THE STATEMENT FILED IN DECEMBER 06 WAS CORRECT. CIT(A) FOUND THAT IT COULD NOT BE SAID THAT THE PERSONS IN CATEGORY-2 HA D CONFIRMED THEIR LETTERS FILED IN DECEMBER 06 BECAUSE ONE HAD STATED THAT HE HAD NOT FILED SUCH STATEMENT THE OTHERS HAD SUBSEQ UENTLY IN THE REMAND PROCEEDINGS NOT CONFIRMED THE STATEMENTS FIL ED BEFORE THE ASSESSING OFFICER. SO NO CREDIBILITY COULD BE ATTA CHED TO IT AS RIGHTLY OBSERVED BY CIT(A). 4.6.2 CATEGORY-3 CONSISTS OF SIX WITNESSES WHO HAVE DEPOSED IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER HAS ACCEPTED THREE OF THEM SUCH AS SHRI RANJITSINGH PATIL SHRI CHANDRAKA NT DUDHAL AND SHRI RAMDAS MANE AS RELIABLE WITNESSES. REGARD ING THE OTHER THREE THE ASSESSING OFFICER HAS STATED THAT SHRI S ANJAY TAKALE APPEARED WITHOUT SUMMONS BEING SERVED ON HIM AND TH EREFORE HE WAS A TUTORED WITNESS. AS REGARDS SHRI SATYAWAN SH ETE IT WAS STATED THAT NO RECORDS WERE MAINTAINED BY HIM TO ES TABLISH HIS STATEMENT AND THEREFORE IT COULD NOT BE TREATED AS RELIABLE. FOR ABOVE REASONS ASSESSING OFFICER DID NOT BELIEVED T HEIR VERSION. THIS CONCLUSION OF ASSESSING OFFICER IS NOT BASED O N COGENT REASONING SO CIT(A) WAS JUSTIFIED IN REJECTING THE SAME. 4.6.3 CATEGORY-4 CONSISTS OF SEVEN PARTIES WHO DID NOT APPEAR DESPITE SUMMONS BEING SERVED. THIS INCLUDES SHRI PR ADIP UTTARWAR AND PRADIP TRADING CO. WHICH PARTIES WERE DISCUSSED EARLIER IN PRECEDING PARA. ONE PARTY I.E. VYANKATESH TRADING CO. HAD FILED A LETTER INTERALIA STATING THAT DURING THE YEAR THERE WAS NO TRANSACTION WITH THE ASSESSEE. 4.6.4 IN THIS BACKGROUND IT WAS FOUND THAT THER E WERE 19 WITNESSES WHO HAD CONFIRMED THEIR EARLIER STATEMENT S BEFORE HIM THAT THERE WAS NO AMOUNT OUTSTANDING AND SIX PERSON S WHO DEPOSED IN FAVOUR OF THE ASSESSEE BY RETRACTING FRO M THEIR EARLIER STATEMENTS BEFORE THE ASSESSING OFFICER. ACCORDING TO ASSESSING OFFICER THE WITNESSES WHO DID NOT APPEAR IN ANY C ASE FILED LETTERS CONFIRMING THAT THERE WAS NO BALANCE OUTSTANDING BE FORE THE ASSESSING OFFICER EARLIER. CIT(A) OBSERVED THAT THE SE LETTERS COULD NOT BE TAKEN AS CONCRETE EVIDENCE SINCE THE SIGNATU RE ON THE LETTERS WERE NOT CONFIRMED. MOREOVER ASSESSEE WAS NOT GIV EN AN OPPORTUNITY TO DEFEND ITSELF AGAINST THE SAID ALLEG ATION. AS REGARDS RELIABILITY AND QUALITY OF EVIDENCE THE PARTI ES IN CATEGORY-1 AS WELL AS IN CATEGORY-3. NONE OF THE WITNESSES HAVE GIVEN EVIDENCE TO SUPPORT THEIR STATEMENTS. THE ADDITION IS PRIMARIL Y BASED ON THE LETTERS OBTAINED FROM 37 CREDITORS DISCUSSED ABOVE. AFTER DETAILED INVESTIGATION INTO THE MATER ONLY 19 CREDITORS COU LD BE SAID TO HAVE 'STOOD BY THEIR STATEMENTS. EVEN THESE 19 CREDITORS DO NOT HAVE ANY EVIDENCE TO SUPPORT THEIR STATEMENTS. THEY HAVE GIV EN A LAME EXCUSE THAT WHATEVER DOCUMENTS THEY HAD HAVE BEEN D ESTROYED AFTER THE YEAR WAS OVER. THE SUMMONS SERVED ON THES E PERSONS HAD DIRECTED THEM SPECIFICALLY TO PRODUCE DETAILS VIZ. PROOF OF IDENTITY AND CAPACITY TO ADVANCE THE SUM OF MONEY DETAILS O F SOURCES OF INCOME CASH BOOK LEDGER SALE BILLS AND BANK PASS BOOK ACCOUNT EXTRACT IN THEIR BOOKS OF THE ASSESSEE COMPANY. THE RE IS NOTHING ON RECORD TO SUGGEST WHETHER ANY OF THE 37 CREDITORS WHO APPEARED HAVE PRODUCED ANY ONE OR ALL OF THE ABOVE DOCUMENT S. IN THIS BACKGROUND CIT(A) RIGHTLY OBSERVED THAT THE ABOVE DOCUMENTS WERE NEITHER INSISTED UPON NOR PRODUCED. WE FIND T HAT ABOVE DOCUMENTS WERE NEITHER INSISTED NOR PRODUCED SO F INDING OF ASSESSING OFFICER FOR MAKING ADDITION IN QUESTION H AS NOT BEEN FOUND SOUND FOOTING. 4.6.5 HAVING CONSIDERED ALL FACTS AND CIRCUMSTA NCES OF THE CASE THE CIT(A) HAVING DISCUSSED ALL ASPECTS OF GENUINEN ESS OF THE TRANSACTIONS AT REMAND STAGE OBSERVED THAT THE CRED IT PERIOD AS MENTIONED IN THE STATEMENT BY CERTAIN CREDITORS WAS BETWEEN 4-5 TO 5 MONTHS AS DISCUSSED IN PRECEDING PARA OF THIS ORD ER. THUS THE CREDITORS HAVE GIVEN DIFFERENT CREDIT PERIODS. CON SIDERING THE EVIDENCE AT HAND THE MAXIMUM PERIOD OF 3 MONTHS WA S FOUND TO BE SUFFICIENT AND REASONABLE CREDIT PERIOD OFFERED BY ASSESSEE. THE PURCHASES ON CREDIT MADE BY ASSESSEE MONTHWISE ARE AS UNDER: SHANKAR UTTARWAR 4-5 DAYS SHARAD DILWALE 10 DAYS MADAN DHALE 2-3 DAYS PANDURANG TELI 8-10 DAYS UDAY MANE 8-10 DAYS RANJIT PATIL 10-12 DAYS S.R.SHETE 3 MONTHS C.DUDHAL 10-12 DAYS RAMDAS MANE 10-12 DAYS NIVRUTTI BHISE 10-12 DAYS SUNIL SHAH 4-5 MONTHS VILAS SHETE 5 MONTHS KALPESH SHAH 5 MONTHS 4.6.6 THE AGGREGATE CREDIT FOR PURCHASES MADE D URING THE MONTH OF JANUARY TO MARCH AND WHICH WAS OUTSTANDING AS ON 31.03.2004 WAS RIGHTLY WORKED OUT RS.9 81 87 037/-. THE AVERA GE CREDIT PERIOD WAS TAKEN AS 3 MONTHS AND IT WAS FOUND CREDI T WHICH ARISE AFTER JANUARY 2004 WOULD NOT HAVE BEEN SQUARED UP AND WOULD HAVE BEEN OUTSTANDING AS ON 31.03.2004. IN THIS BA CKGROUND CIT(A) WAS JUSTIFIED IN ESTIMATING THAT CREDITS ARI SING THIS PERIOD WERE GENUINE CREDITS WHICH COULD HAVE BEEN SQUARED UP SUBSEQUENTLY. THE LIST OF CREDITORS SQUARED UP DUR ING THE YEAR PROVIDED A GOOD INDICATOR OF AVERAGE CREDIT PERIOD. THE AVERAGE PERIOD WAS RIGHTLY WORKED OUT TO 3 MONTHS. SUCH CR EDIT AMOUNT AGGREGATED TO RS.9 81 87 037/-. SO ASSESSING OFFI CER WAS RIGHTLY DIRECTED TO REDUCE THE ABOVE AMOUNT OF ADDITION MAD E U/S. 68 OF I.T ACT. WE UPHOLD THE SAME. 4.6.7 SO FAR AS THE BALANCE AMOUNT OF RS.8 87 0 3 901/- SUSTAINED BY THE LD. CIT(A) IS CONCERNED WE FIND T HAT HE SUSTAINED THE SAME BY HOLDING THAT MAXIMUM PERIOD OF 3 MONTHS CREDIT IS SUFFICIENT AND REASONABLE. IN THE INSTANT CASE WE FIND THE AO/CIT(A) HAVE NOT DISPUTED THE PURCHASES MADE BY T HE ASSESSEE. THE G.P. RATE IS ALSO NOT DISPUTED. THE BOOKS OF AC COUNTS HAVE NOT BEEN REJECTED. THE WHOLE EXERCISE HAS BEEN DONE ON THE BASIS OF STATEMENT OF SOME OF THE CREDITORS AND COMPARABLE C ASES. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 68/69 ARE NOT APPLICABLE THAT THE PROFI T SHOWN BY THE ASSESSEE IS MORE THAN THE COMPARABLE CASE TAKEN BY THE AO I.E. IN THE CASE OF RAJARAM SOLVEX LTD. AND THAT THE ASSESS EE WAS NOT ALLOWED TO REMAIN PRESENT DURING THE EXAMINATION OF WITNESSES AND THAT NONE OF THE WITNESSES WERE EXAMINED ON OATH. SINCE THIS IS THE FIRST YEAR OF OPERATION AND THE ASSESSEE PURCHA SES ITS RAW MATERIALS FROM FARMERS THROUGH BROKERS IN SOME CASE S AND THAT MOST OF THE FARMERS / BROKERS DO NOT MAINTAIN BOOKS OF ACCOUNT THEREFORE THE CREDIBILITY OF THEIR STATEMENTS REGA RDING THE EXACT TIME GAP BETWEEN THE DATE OF SALE AND DATE OF PAYME NT CANNOT BE TAKEN AS ABSOLUTELY CORRECT THEREFORE SOME GUESS W ORK HAS TO BE DONE. WE FIND THE REVENUE IN THE INSTANT CASE HAS NOT CONCLUSIVELY PROVED WITH ANY COGENT EVIDENCE THAT ASSESSEES UNA CCOUNTED MONEY HAS BEEN PAID TOWARDS PURCHASES AND SUBSEQUEN TLY THE SAME HAS BEEN REGULARIZED WHEN CASH IS AVAILABLE IN THE BANK. THE WHOLE EXERCISE IS ON GUESS WORK. SIMILARLY THE CO NTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO ADDITION IS RE QUIRED TO BE MADE U/S.68/69 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE ALSO CANNOT BE ACCEPTED IN VIEW OF THE DETAILED FIN DING GIVEN BY THE LD. CIT(A) IN THE PRECEDING PARAS. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE OF 20% OF RS.8 87 03 901/- [(OUT OF TH E AMOUNT SUSTAINED BY LD.CIT(A)] IN OUR OPINION WILL MEET T HE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. THE GROU NDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ACCORDINGLY PARTLY ALLOW ED AND GROUND RAISED BY REVENUE IS DISMISSED. 5. DISALLOWANCE U/S.40A(3); 5.1 FIRSTLY THE ASSESSING OFFICER FOUND THAT THE A SSESSEE HAS MADE CASH PAYMENTS FOR PURCHASE OF SOYABEEN AMOUNTI NG TO RS.3 56 40 982/-. THE INDIVIDUAL PAYMENTS WERE ABOVE THE LIMIT PRESCRIBED IN SEC.40A(3) OF ACT. THE APPELLANT EXPLAINED BEFORE THE AO THAT THE PAYMENTS HAD BEEN MADE TO AGRICULTURISTS OR THEIR AGENTS. THE ASSESSEE'S CASE WAS COVERED UNDER CLAUSE (H) AND (1) UNDER RULE 6DD OF THE INCO ME-TAX RULES. THE ASSESSING OFFICER HAS HELD THAT THE EXCEPTION W AS NOT APPLICABLE TO THE ASSESSEE BECAUSE THE APPELLANT HA D NOT PROVED BY WAY OF DOCUMENTARY EVIDENCE THAT THE PAYMENTS WERE MADE TO AGRICULTURISTS. 5.2 THE ASSESSING OFFICER MADE THE SECOND DISALLOW ANCE U/S.40A(3) OF AN AMOUNT OF RS.4 10 21 320/-. THIS D ISALLOWANCE MADE @20% OF THE AMOUNT OF CREDITS WHICH IN THE ASS T ORDER WERE TREATED AS BOGUS CREDITS. THE TOTAL AMOUNT OF SUC H CREDITS WHICH WERE ADDED U/S.68 OF THE ACT WAS RS.18 68 90 938/-. ACCORDING TO THE AO THESE CREDITS WERE LEFT LYING IN THE BOOKS WHILE THE SUPPLIERS OF SOYABEEN AND OTHER ITEMS HAD BEEN PAID IN CASH. IT IS STATED IN THE ASSESSMENT ORDER THAT A SHOW CAUSE N OTICE WAS ISSUED TO THE APPELLANT VIDE LETTER DTD. 15/1 2/06. THE APPELLANT WAS ASKED TO SUBMIT ITS REPLY ON 18/12/06 . THE APPELLANT DID NOT SUBMIT ANY REPLY TO THE ABOVE LETTER. IT WAS THEREFORE CONCLUDED THAT THE APPELLANT HAD NOTHING TO SAY. 5.3 THE APPELLANT ON THIS SUBMITTED BEFORE CIT(A) THAT IT WAS A SETTLED ISSUE THAT A DOUBLE ADDITION CANNOT BE MADE IN RESPECT OF THE SAME AMOUNT. THE ALLEGED BOGUS CREDITORS HAD ALREADY BEEN ADDED U/S.69. NO FURTHER ADDITION U/S.40A(3) COUL D BE MADE ON THIS ACCOUNT. THE APPELLANT RELIED ON THE DECISIO N IN THE CASE OF KEJRIWAL INDUSTRIES 169 ITR 12( RAJ) WHERE IT WAS H ELD THAT ONE GROUND IS GOOD ENOUGH AND SUFFICIENT TO CONSIDER AD DITION U/S.40A(3) AND IT IS NOT NECESSARY THEREFORE TO CO NSIDER THE OTHER ASPECT OF THE MATTER AS TO WHETHER THE SAME AMOUNT COULD ALSO BE ADDED U/S.69. 5.4 ON THE ISSUE OF OTHER CASH PAYMENT THE APPEL LANT SUBMITTED A LIST OF PAYMENT STATING THAT THE PAYMENTS WERE MADE TO COMMISSION AGENT WHO SUPPLIED MATERIAL PROCURED FRO M THE AGRICULTURISTS. THE APPELLANT RELIED ON CLAUSE (H) AND (1) FO THE RULE 6DD OF THE I.T.RULES. 5.5 THE CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSE SSEE BY HOLDING AS UNDER: 90. I HAVE CONSIDERED THE SUBMISSIONS. THE CONTE NTION OF THE APPELLANT WITH REGARD TO THE CASH PAYMENTS WHI CH FORMS THE FIRST LIMB OF THE ADDITION MADE U/S.40A(3) IS N OT ACCEPTABLE. THE APPELLANT HAS RELIED ON CLAUSE (H ) AND (1) OF RULE 6DD. CLAUSE (H) IS AS UNDER: (H) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK TO ANY PERSON WHO ORDINARILY RESIDES OR IS CARRYING ON AN Y BUSINESS PROFESSION OR VOCATION IN ANY SUCH VILLAGE OR TOWN ; 91. THE APPELLANT'S CONTENTION IS THAT THE PERSON S TO WHOM PAYMENTS WAS MADE WERE AGENTS AND THE PAYMENTS WAS MADE IN CHIPRI WHERE THE APPELLANT'S FACTORY WAS LOCATED . CHIPRI IS A VILLAGE WHICH IS NOT SERVED BY ANY BANK. A CERTIFIC ATE FROM THE LOCAL AUTHORITY WAS SUBMITTED TO SUPPORT THE CONTEN TION. THE APPELLANT COULD THUS SATISFY ONLY A PART OF CONDITI ON IN CLAUSE (H). ACORDING TO THE CLAUSE (H) NOT ONLY SHOULD TH E PLACE WHERE PAYMENT IS MADE BE WITHOUT A BANK THE PERSON TO WHOM THE PAYMENT IS MADE SHOULD ORDINARILY BE RESID ING IN THAT VILLAGE OR CARRYING ON HIS PROFESSION THERE. T HE APPELLANT COULD NOT GIVE ANY DOCUMENTS TO PROVE THAT PAYMENTS HAD BEEN MADE TO PERSONS WHO ORDINARILY RESIDED OR CARR IED BUSINESS OR PROFESSION IN THE VILLAGE. 92. CLAUSE (1) OF RULE 6DD IS AS UNDER: (I) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR G OODS OR SERVICES ON BEHALF OF SUCH PERSONS. 93. THE REQUIREMENT HERE IS THAT THE PAYMENT HAS T O BE MADE BY THE APPELLANT TO HIS AGENT WHO IS REQUIRED TO MA KE PAYMENT IN CASH FOR GOODS AND SERVICES ON BEHALF OF SUCH PERSON. THE PAYMENT DOES NOT SATISFY THIS CLAUSE. THERE IS NO DOCUMENTARY EVIDENCE THAT PAYMENTS HAVE BEEN MADE T O AGENTS APPOINTED BY THE APPELLANT. FURTHER THERE IS NO EVIDENCE ALSO THAT THE AGENTS TO WHOM PAYMENT ( WAS MADE HAD TO MAKE FURTHER PAYMENT FOR GOODS AND SERVICES ON BEHALF OF THE APPELLANT AND IN CASH. 94. IN VIEW OF THE FACT THAT THE APPELLANT HAS NO T BEEN ABLE TO SATISFY EITHER CLAUSE (H) OR (1) THE DISALLOWANCE U/S.40A(3) OF RS.71 28 196/- IS CONFIRMED. 95. AS REGARDS THE SECOND LIMB OF DISALLOWANCE W HICH IS FOR AN AMOUNT OF RS.4 10 21 320/- THE APPELLAN T'S CONTENTION HAS CONSIDERABLE FORCE. THE DEC ISION CITED BY THE APPELLANT IS ON THE SAME FACTS AND CIRCUMSTANCE S AS THAT OF THE APPELLANT. CERTAIN CREDITORS HAVE BEEN TREAT ED AS BOGUS AND THE ENTIRE AMOUNT OF CREDIT IN THE BOOKS STANDI NG IN THE NAME OF THAT CREDITOR HAS BEEN ADDED U/S.68. ONCE THE ENTIRE EXPENDITURE HAS BEEN DISALLOWED UNDER ONE OR OTHER PROVISIONS OF THE ACT FURTHER DISALLOWANCE CANNOT BE MADE AS IT WILL RESULT IN DISALLOWANCE WHICH IS MORE THAN T HE EXPENDITURE ITSELF. THE PROVISIONS OF SECTION 40 A(3) EARLIER PROVIDED FOR DISALLOWANCE OF THE ENTIRE AMOUNT WHIC H HAS BEEN PAID OTHERWISE THAN BY CHEQUE OR DRAFT. SUBSEQ UENTLY THE DISALLOWANCE WAS RESTRICTED TO 20% OF THE EXPEN DITURE OR THE PAYMENT. IT CAN NEVER BE THE CASE THAT THE DISA LLOWANCE U/S.40A(3) EXCEED THE EXPENDITURE OR THE PAYMENT IT SELF. 96. THE SECOND ASPECT IS THAT THERE IS NO PAYMENT WHICH HAS BEEN DEBITED TO THE BOOKS OF ACCOUNTS OF THE APPELL ANT. THE AO HAS COME TO THE CONCLUSION BASED ON CIRCUMSTANTI AL EVIDENCE AND THE STATEMENT OF SOME CREDITORS THAT T HEY HAD BEEN PAID DURING THE YEAR AND NO AMOUNT WAS OUTSTAN DING AGAINST THE APPELLANT COMPANY. EVEN IF IT IS ACCEP TED THAT THE CREDITS WERE BOGUS AND THE AMOUNTS WERE PAID IN CAS H THERE IS ABSOLUTELY NO EVIDENCE WHETHER THE AMOUNTS WERE PAID IN LUMPSUM OR IN INSTALMENTS. THE CREDITORS WHOSE STAT EMENTS WERE RECORDED HAD SIMPLY STATED THAT NOTHING WAS OUTSTANDING TO THEM AT THE END OF THE YEAR. NONE O F THEM HAD GIVEN ANY DETAILS OF PAYMENT IN CASH RECEIVED BY TH EM. THERE IS THEREFORE NO EVIDENCE THAT THE PAYMENTS WHICH W ERE RECEIVED IN CASH ON EACH OCCASION IS MORE THAN RS.2 0000/-. THE PROVISIONS OF SECTION 40A(3) APPLY TO EACH SING LE PAYMENT IF IT IS MORE THAN THE PRESCRIBED LIMIT. 97. IT WAS HELD IN THE CASE OF CIT VS. BA NWARILAL BANSIDHAR THAT THE OF SECTION 40A(3) APPLY ONLY T O A CASE OF GENUINE PAYMENT. WHERE IS COMPUTED' BY APPLYING GRO SS PROFIT RATE AND DEDUCTION IN RESPECT OF IS NEITHER CLAIMED NOR ALLOWED THE PROVISIONS OF SECTION 40A(3) HAVE APPL ICATION. IN THE CASE OF CIT VS.CHEMIFME 270 ITR 305 THE M.P.HI GH COURT SIMILARLY DECIDED THAT WHERE A NET PROFIT RATE IS A PPLIED SECTION 40A(3) CAN HAVE NO APPLICATION. 98. THE ISSUE OF BOGUS CREDITORS HAS BEEN DISCUSS ED AND DECIDED IN THE EARLIER PART OF THIS ORDER. IT WI LL BE SEEN FROM THAT DISCUSSION THAT THE DISALLOWANCE IS BASED ON T HE STATEMENT OF A FEW CREDITORS AND ON AN ADVERSE INFE RENCE DRAWN IN CASES WHERE THE APPELLANT COULD NOT PROVID E THE CORRECT AND COMPLETE ADDRESSES FOR SERVICE OF SUMMO NS. THERE IS NO EVIDENCE OF ACTUAL PAYMENTS BEING DONE IN CAS H AND THAT TO ABOVE THE PRESCRIBED LIMIT U/S.40A(3) FOR THE PR OVISIONS OF THE SECTION TO APPLY. 99. THE DISALLOWANCE OF RS. 4 10 21 320/- U/S.40A(3 ) WAS DELETED. 5.6 WITH REGARD TO DISALLOWANCE U/S 40A(3) THE STA ND OF LEARNED AUTHORIZED REPRESENTATIVE IS THAT IN THE ABSENCE OF BANKING FACILITIES IN THE VILLAGE WHERE THE BUSINESS WAS CA RRIED OUT CREATING GENUINE DIFFICULTIES IN PAYMENT BEING MADE BY CROSS ED CHEQUES OR DRAFTS WHICH WERE ALSO NOT ACCEPTABLE TO THE PAYEE WHO HAD GENUINE DIFFICULTIES IN ACCEPTING PAYMENTS BY THAT MODE IT WAS HELD THAT THE DISALLOWANCE U/S 40(A)(3) WAS NOT JUSTIFIE D IN VIEW OF RULE 6DD(H)AND (J). CIT VS. ASHISH COAL COKE TRADERS 163 ITR 174 (MP). IN THIS CASE THE PAYMENTS ARE MADE IN VILLAGE CHIPR I WHICH IS NOT SERVED BY ANY BANK A LETTER OF THE GRAM PANCHAYAT TO THIS EFFECT IS ALREADY SUBMITTED. PAYMENTS MADE TO SMALL TIME VEN DORS WHO CAME FROM SURROUNDING VILLAGES TO SELL THE SKIN AND THE PROCESS OF DRESSING THE SKIN WAS DONE WITHOUT AID OF POWER. TH E TRIBUNAL NOTED FROM THE ORDER OF CIT(A) THAT CONSIDERING TH E FACT THAT THE PURCHASES WERE MADE FROM UNORGANIZED SECTOR CASH PA YMENT WERE INDISPENSABLE. SECTION 40(A)(3) CONSTITUTIONALLY U PHELD EVEN AFTER AMENDMENT IN RULE 6DD(J). AS CLAUSE 6DD(H) READ WIT H CLAUSE (K) ITSELF PROVIDE SUFFICIENT LIBERATION OF THE RIGORS OF SECTION 40A(3) WHICH ENTITLES THE PARTIES TO CLAIM FULL DEDUCTION ON CASH PAYMENT OVER RS 20000/- WHERE BANKING TRANSACTIONS ARE NOT AVAILABLE IN THE PLACE WHERE EXPENSES IS INCURRED OR ON THE DATE ON WHICH THE EXPENSES IS INCURRED. CLAUSE (H) AND (K) ARE SUFFIC IENT LIBERATION TO GET OVER THE PRACTICAL DIFFICULTIES OF SECTION 40(A )(3) KAMATE MARBLES VS ITO 260 ITR 475 (KAR) ALSO AS ALREADY SUBMITTED THE PAYMENTS WERE MADE TO THE FARMERS OR TO THE AGENTS ON THEIR BEHALF. SUCH PAYMENTS ARE ALSO COVERED BY RULE 6 DD (F) AND 6 DD (I) OF THE RULE AS IT THEN EXISTED. ON THE OTHER HAND LEARNED DEPA RTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF AUTHORITIES B ELOW. 5.7 AFTER GOING THROUGH RIVAL SUBMISSION AND MATERI AL ON RECORD WE FIND THAT ACCORDING TO THE ASSESSING OFFICER TH E ASSESSEE MADE CASH PAYMENT FOR PURCHASE OF SOYABEEN AMOUNTING TO RS.3 56 40 982/- INDIVIDUAL PAYMENTS WERE MADE ABO VE THE LIMIT PRESCRIBED U/S.40A(3). ACCORDINGLY THE ADDITION O F RS.71 28 196/- WAS MADE BY THE ASSESSING OFFICER WHICH HAS BEEN CO NFIRMED BY THE CIT(A). THE STAND OF THE ASSESSEE HAS BEEN THA T PAYMENT HAD BEEN MADE TO THE AGRICULTURISTS OR THEIR AGENTS TH E ASSESSEE WAS COVERED UNDER (H) AND (I) UNDER RULE 6DD OF I.T RUL ES. THE ASSESSING OFFICER HELD THAT EXCEPTION WAS NOT APPLI CABLE TO THE ASSESSEE BECAUSE THE ASSESSEE COULD NOT PROVE BY WA Y OF DOCUMENTARY EVIDENCE THAT PAYMENTS WERE MADE TO THE AGRICULTURISTS. THIS ASPECT HAS NOT BEEN LOOKED IN THE LIGHT OF OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE AUTHOR ITIES BELOW SO IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THIS ISSUE TO THE ASSESSING OFFICER WITH A DIRECTIO N TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORT UNITY OF HEARING TO THE ASSESSEE. 5.8 WITH REGARD TO DELETION OF ADDITION OF RS.4 10 21 320/- THE STAND OF DEPARTMENTAL REPRESENTATIVE AS REGARDS THE ADDITION MADE UNDER SECTION 40A(3) IT HAS BEEN HELD BY THE CIT(A) THAT SINCE ADDITION HAS ALREADY BEEN MADE W.R.T. THE CRE DITORS U/S 69 NO FURTHER ADDITION IS POSSIBLE UNDER S40A(3). IN T HIS CONTEXT OUR ATTENTION IS DRAWN TO THE CASE OF GANESH FOUNDRY AN D CASTING LTD. VS. ITAT (2010) 328 ITR 202 (PAT) WHERE THE PATNA H IGH COURT HAS HELD THAT IN RESPECT OF AMOUNTS WHICH WERE FOUND TO BE PAID OUT BY BEARER CHEQUES AND LATER RETURNED TO THE ASSESSEE THAT NOT ONLY WERE SUCH AMOUNTS UNDISCLOSED INCOME OF THE ASSESSE E THEY WERE ADDITIONALLY HIT BY THE BAR OF SECTION 40A(3). THE HIGH COURT HAS FURTHER OPINED: 'THERE IS YET ANOTHER ASPECT OF THE MATTER. LAW IS WELL SETTLED THAT FRAUD UNRAVELS EVERYTHING. WE ARE SATISFIED TH AT THE MATERIALS ON RECORD DISCLOSE THAT THE APPELLANT ENG AGED ITSELF IN ACTS OF FRAUD INDICATED HEREINABOVE AND THE SAME BY ITSELF WILL DEFEAT THE APPELLANT'S CLAIM FOR DEDUCTION. RE FERENCE MAY BE MADE TO THE JUDGMENT OF THE COURT OF APPEAL IN E NGLAND REPORTED IN LAZARUS ESTATES LTD. V. BEASLEY [1956] 1 ALL ER 341 (CA). SPEAKING FOR THE COURT LORD DENNING OBSER VED AS FOLLOWS (PAGE 345): 'IF THIS ARGUMENT IS CORRECT THE LANDLORDS WOULD P ROFIT GREATLY FROM THEIR FRAUD. THE INCREASE IN RENT WOULD PAY TH E FINE MANY TIMES OVER. I CANNOT ACCEDE TO THIS ARGUMENT F OR A MOMENT. NO COURT IN THIS LAND WILL ALLOW A PERSON T O KEEP AN ADVANTAGE WHICH HE HAS OBTAINED BY FRAUD. NO JUDGME NT OF A COURT NO ORDER OF A MINISTER CAN BE ALLOWED TO ST AND IF IT HAS BEEN OBTAINED BY FRAUD. FRAUD UNRAVELS EVERYTHING. THE COURT IS CAREFUL NOT TO FIND FRAUD UNLESS IT IS DISTINCTL Y PLEADED AND PROVED; BUT ONCE IT IS PROVED IT VITIATES JUDGMENTS CONTRACTS AND ALL TRANSACTIONS WHATSOEVER;' THEREFORE THE CIT(A) IS INCORRECT IN HOLDING THAT T HE ADDITION IN RESPECT OF S 40A(3) AMOUNTS TO DOUBLE ADDITION. SO SHE SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER MAY BE REST ORED. ON THE OTHER HAND LEARNED AUTHORIZED REPRESENTATIVE SUPPO RTED THE ORDER OF CIT(A) WHO HAS DELETED THE ADDITION MADE BY WAY OF DISALLOWANCE U/S.40A(3) OF ACT OF RS.4 10 21 320/-. 5.9 AFTER GOING THROUGH THE RIVAL SUBMISSION AND MA TERIAL ON RECORD WE FIND THAT THE ADDITION BY WAY OF DISALLO WANCE OF RS.4 10 21 320/- U/S.40A(3) WAS MADE @ 20% OF THE A MOUNT OF CREDIT WHICH IN THE ASSESSMENT ORDER WAS TREATED AS BOGUS. THE TOTAL AMOUNT OF SUCH CREDIT WAS ADDED U/S.68/69 OF ACT AT RS.18 68 90 938/-. ACCORDING TO THE ASSESSING OFFI CER THESE CREDITS WERE LEFT LYING IN BOOKS WHILE SUPPLIES OF SOYABEEN AND OTHER ITEMS HAD BEEN PAID IN CASH. THE ASSESSEE WA S ASKED TO SUBMIT HIS REPLY IN THIS REGARD AND SINCE HE DID NO T SUBMIT REPLY IN RESPONSE TO THE LETTER OF THE ASSESSING OFFICER DAT ED 15.12.2006 ADDITION IN QUESTION WAS MADE. BEFORE THE CIT(A) THE STAND OF THE ASSESSEE WAS THAT ONCE THE ENTIRE EXPENDITURE HAS B EEN DISALLOWED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT FURTH ER DISALLOWANCE COULD NOT BE MADE AS IT WOULD RESULT IN DISALLOWANC E WHICH IS MORE THAN EXPENDITURE ITSELF. THE PROVISIONS OF SECTION 40A(3) EARLIER PROVIDED FOR DISALLOWANCE OF ENTIRE AMOUNT WHICH WO ULD HAVE BEEN PAID OTHERWISE THAN THE CHEQUE OR DRAFT SUBSEQUENTL Y THE DISALLOWANCE WAS RESTRICTED TO 20% OF EXPENDITURE O F THE PAYMENT. THE DISALLOWANCE U/S.40A(3) CANNOT EXCEED EXPENDITU RE OF PAYMENT ITSELF. THE CIT(A) HAS OBSERVED THAT THE DISALLOWA NCE WAS BASED ON STATEMENT OF FEW CREDITORS AND ON ADVERSE INFERENCE DRAWN IN CASE WHERE THE ASSESSEE WAS NOT PROVIDED CORRECT AND COM PLETE ADDRESS. THERE IS NO EVIDENCE OF ACTUAL PAYMENT BEING DONE I N CASH AND THAT TOO ABOVE THE PRESCRIBED LIMIT U/S.40A(3) FOR APPLI CATION OF PROVISIONS OF SECTION 40A(3). ACCORDINGLY THE DIS ALLOWANCE OF RS.4 10 21 320/- U/S.40A(3) WAS DELETED. THE STAND OF THE REVENUE BEFORE US IS THAT IN THE CASE OF GANESH FOU NDRY AND CASTING LTD. VS. ITAT (SUPRA) THE HONBLE HIGH COUR T OF PATNA HAS HELD THAT IN RESPECT OF AMOUNTS WHICH WERE FOUND TO BE PAID OUT BY BEAR CHEQUE AND LATER RETURNED TO THE ASSESSEE WITH ONLY SUCH AMOUNTS UNDISCLOSED INCOME OF THE ASSESSEE AND THEY WERE ADDITIONAL HIT BY BAR OF PROVISIONS OF SECTION 40A( 3) OF ACT. IN CASE BEFORE US THERE IS NO CASE OF PAYMENT MADE BY CHEQU E AND ROUTING SAID AMOUNT BACK TO THE ASSESSEE IN ANY MANNER. SO THIS RATIO IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT IS NOT IN DISPUTE THAT CERTAIN CREDITORS HAVE BEEN TREATED AS BOGUS AND ENTIRE AMOUNT OF CREDIT IN BOOKS STANDS IN THE NAME OF THAT CREDITOR HAS BEEN ADDED U/S.68/69 OF ACT. ONCE THE ENTIRE EXPENDITURE HAS BEEN DISALLOWED UNDER ONE OR THE OT HER PROVISIONS OF THAT FURTHER DISALLOWANCE CANNOT BE MADE AS IT WILL RESULT IN DISALLOWANCE WHICH IS MORE THAN EXPENDITURE ITSELF. IN THE FACTS AND CIRCUMSTANCES THE CIT(A) WAS JUSTIFIED TO DELET E THE ADDITION IN QUESTION SO THE ORDER OF CIT(A) NEEDS NO INTERFERE NCE FROM OUR SIDE. WE UPHOLD THE SAME. 6. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARD TO ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVID END UNDER THE PROVISIONS OF SECTION 2(22)(E) OF ACT OF RS.12 47 2 0 000/-. 6.1 ASSESSING OFFICER HAD DECIDED THE ISSUE AGAINS T THE APPELLANT ON THE APPLICABILITY OF PROVISIONS OF SECTION 2(22) (E) OF ACT FOLLOWING AN APPEAL IN THE CASE OF ONE OF THE GROUP COMPANIES OF THE SAME (GHODAWAT) GROUP NAMELY STAR FLEXI PACK INDUSTRIES APPEAL NO.ICH/534/06-07 A.Y.2004-05. IN SECOND APPEAL IN T HE CASE OF STAR FLEXI PACK INDUSTRIES THE PUNE BENCH OF THE IT AT HAS RECENTLY DECIDED SIMILAR ISSUE VIDE ITA NO.731/PN/07 AND ITA NO.787/PN/07 DTD.30 TH JANUARY 09. THE TRIBUNAL HAS HELD IN STAR FLEXI PACK INDUSTRIES (SUPRA) FOLLOWING SPECIAL BEN CH DECISION IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. ITA NO.5030/MUM/04 HAS HELD AS UNDER: THE EXPRESSION SHAREHOLDER REFERRED TO IN SEC.2(22) (E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREH OLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENE FICIAL SHAREHOLDER THAN THE PROVISIONS OF SEC.2(22)(E) WIL L NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROVISIONS OFS EC.2(22)(E) WILL NOT APPLY. 6.28 IN VIEW OF THE AFOREMENTIONED FINDING JUDICIA L PRECEDENT WHICH IS DEEMED TO BE ATTACHED TO AND FORMING PART OF THIS ORDER AND HAVING REGARD TO THE UNDISPUTED FACT THA T THE ASSESSEE BEFORE US IS NOT A REGISTERED SHAREHOLDER IN GIPL WE HAVE TO HOLD THAT VERY TAXABILITY OF DEEMED DIVIDEN D U/S.2(22)(E) IN THE HANDS OF THE ASSESSEE FAILS. TH E ASSESSEE SUCCEEDS .ON THIS FUNDAMENTAL ISSUE. IN THIS VIEW O F THE MATTER ALL OTHER ISSUES RAISED IN THE CROSS APPEAL S WHICH DEAL WITH THE MERITS AND QUANTUM OF ADDITION HAVE B EEN RENDERED INFRUCTUOUS. THESE GRIEVANCES ARE DISMISSE D AS SUCH. 6.29 IN THE RESULT WHILE THE ASSESSEE'S APPEAL IS ALLOWED IN THE TERM INDICATED ABOVE THE APPEAL FILED BY THE R EVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH JANUARY 2009. 6.2 AS STATED THE TRIBUNAL IN COMING TO THE ABOV E CONCLUSION HAS FOLLOWED THE DECISION IN THE CASE OF BHAUMIK COLOUR P. LTD. WHERE THE QUESTIONS RAISED BEFORE THE TRIBUNAL WERE AS UN DER: 1) WHETHER DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME TAX ACT 1961 CAN BE ASSESSED IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER OF THE LENDER? 2) WHETHER THE WORDS 'SUCH SHAREHOLDER' OCCURRING IN S ECTION 2(22)(E) REFER TO A SHAREHOLDER WHO IS BOTH THE 'REGISTERED' SHAREHOLDER AND THE BENEFICIAL SHAREHOLDER? 6.3 THE ABOVE QUESTIONS WERE ANSWERED AS UNDER IN THE CASE OF BHAUMIK COLOUR P LTD AS UNDER: ON THE FIRST QUESTION: DEEMED DIVIDEND CAN BE AS ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHARE HOLDER. ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDER IN SEC.2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFIC IAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THAN THE PROVISIONS OF SEC.2(22)(E) WIL L NOT 'APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER B UT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROVISIONS OFSEC.2(22)(E) WILL NOT APPLY. 6.4 THE FACTS ARE IDENTICAL IN THE CASE OF THE APP ELLANT COMPANY. DEEMED DIVIDEND ARISES IN THE TRANSACTION OF THE AP PELLANT COMPANY WITH GHODAWAT INDUSTRIES P. LTD AS IN THE C ASE OF STAR FLEXI PACK INDUSTRIES. STAR FLEXI PACK WAS NOT A SH AREHOLDER. SHRI SANJAY GHODAWAT A PARTNER WITH SUBSTANTIAL HOLDING IN STAR FLEXI PACK INDUSTRIES WAS ALSO A SHAREHOLDER WITH SUBSTAN TIAL HOLDING IN GHODAWAT INDUSTRIES P. LTD. THEREFORE STAR FLEXI PA CK INDUSTRIES WAS HELD TO BE A BENEFICIAL SHAREHOLDER IN' GHODAWA T INDUSTRIES P. LTD BY THE CIT (A) KOLHAPUR RELYING ON THE CBDT C IRCULAR NO 495 DT 22-09-1987 WHEREIN IT WAS MENTIONED THAT DEDMED DIVIDEND COULD BE TAXED IN THE HANDS OF A CONCERN ( NON SHAR EHOLDER) ALSO IF THE CONDITIONS MENTIONED IN THE SECTION WERE SATISF IED. 6.5 IN THE CASE OF THE APPELLANT ALSO THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. SHRI SANJAY GHODAWAT IS A REGISTERE D SHAREHOLDER WITH SUBSTANTIAL HOLDING IN BOTH GHODAWAT INDUSTRIE S P. LTD AS WELL AS THE APPELLANT COMPANY. HOWEVER THE APPELLA NT COMPANY IS NOT A REGISTERED SHAREHOLDER OF GHODAWAT INDUSTRIES P. LTD. THE PROVISIONS OF SEC 2(22) (E) OF ACT REGARDING DEEMED DIVIDEND ACCORDING TO THE DECISION OF THE HONBLE TRIBUNAL I N THE CASE OF THE OTHER GROUP COMPANY STAR FLEXI PACK INDUSTRIES CANNOT APPLY TO A BENEFICIAL SHAREHOLDER WHICH IS NOT ALSO A REGIST ERED SHAREHOLDER. THE FACTS AND CIRCUMSTANCES IN BOTH THE APPELLANT C OMPANY AND STAR FLEXI PACK ARE IDENTICAL. THE TRANSACTIONS ON WHICH DEEMED DIVIDEND IS DETERMINED ARE WITH GHODAWAT INDUSTRIES P LTD AS IN THE CASE OF STAR FLEXI PACK. THE DECISION IN STAR F LEXI PACK INDUSTRIES THEREFORE APPLIES WITH EQUAL MEASURE TO THE APPELLANT'S CASE. FOLLOWING THE DECISION IN STAR FEXI PACK INDU STRIES IT IS HELD THAT THE PROVISIONS OF SEC.2(22)(E) ARE NOT ATTRACT ED IN THE CASE OF THE APPELLANT AS THE ESSENTIAL CONDITION OF THE AP PELLANT BEING A REGISTERED SHARE HOLDER OF GHODAWAT INDUSTRIES P. L TD. IS NOT SATISFIED. THUS ADDITION ON ACCOUNT OF DEEMED DIV IDEND U/S 2(22)(E) WAS DELETED BY THE CIT(A) FOLLOWING THE DE CISION OF THE SPECIAL BENCH OF ITAT IN CIT VS BHAUMIK COLOR 313 I TR(AT)146 MUM. NOW HON.BOMBAY HIGH COURT HAS ALSO APPROVED TH IS DECISION IN CIT VS UNIVERSAL MEDICARE PVT LTD (2010 ) 324 ITR 263 (BOM). IN VIEW OF ABOVE THE CIT(A) HAS RIGHTLY DE LETED ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S.2(22)(E) OF ACT AND THE SAME IS UPHELD. 7. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSE D AND THAT OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THE DAY OF 30 TH OCTOBER 2013. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 30 TH OCTOBER 2013 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT-(A) KOLHAPUR 4) THE CIT KOLHAPUR 5) THE DR A BENCH I.T.A.T. PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY I.T.A.T. PUNE