Income Tax Appellate Tribunal - Chandigarh
Ito, Malerkotla vs M/S Modi Industries, Malerkotla on 13 March, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "बी", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'B' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग&ु ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM
आयकर अपील सं./ ITA No.1052/Chd/2010
नधा रण वष / Assessment Year : 2007-08
The Income Tax Officer, बनाम M/s Modi Inds.,
IV(3), Malerkotla. A-I. Industrial Area,
Malerkotla.
थायी लेखा सं./PAN NO: AAEFM9478J
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : Shri Manjit Singh, Sr.DR
राज व क ओर से/ Revenue by : Shri Ashwani Kumar, CA
सन
ु वाई क तार$ख/Date of Hearing : 09.01.2019
उदघोषणा क तार$ख/Date of Pronouncement: 13.03.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member:
The present ap peal has been fi l ed by the Re venue agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -II , Ludhi ana (in short 'CI T( A) ' dated 14.5.2010 passed u/s 250( 6) of the I ncome Ta x At, 1961 ( hereinafter referred to as 'Act') .
2. Ground Nos.1 and 2 rai sed by the Revenue, i t was poi nted out by the Ld. DR, were i nterrel ated rel ating to the addi ti on to the i ncome of the a ssessee by the Assessi ng Offi cer( i n short referred to as "A.O") . by fi rst rejecti ng the books of accoun t of the assesse e u/s 145( 3) of the Act on account of di s crepanci es noted therei n and thereafter appl yi ng the GP rate of 16% to the enhanced gross turnover 2 ITA No.1052/Chd/2010 A.Y.2007-08 of the assessee, thus maki ng addi ti on of Rs.53,56,040/- and further maki ng a ddi ti on on accou nt of unaccounte d sal es of steel bi l l ets outsi de the books of account of the assessee. The Ld. DR, therefore, took both the grounds together for maki ng hi s arguments.
3. B r i e f f ac t s r e l a t i n g t o t h e i s s u e a r e t h a t t h e a s se s s ee d e r i v e s i n c o me fr o m m a nu f a c t ur i n g & s a l e o f l e af s p r i ng s u s e d i n a u t o i n du s t r i e s . D ur i n g as s e s s m e n t pr o c ee d i n g s t he A . O . n o te d s ev e ra l d i s c re p a n c i e s i n t h e q u a n t i t a t i v e d e t a i l s f u r n i s h e d by t h e a s s e s s e e o f r a w m a t e r i a l p u rc ha s e d b y i t a n d a l s o n o te d di s c r e p a n ci e s i n th e m a n u fa c t u r i ng a c c o u nt a n d s t o c k d e t ai l s m a i n t a i n ed b y i t , w h i c h w e r e o u t l i n e d i n p a r a s 3 t o 5 o f th e a s s e ss m e n t or d e r , th e g i s t of w h i c h fi n d s m e n t i o n a t p a r as 4 . 1 a n d 4 . 2 o f t h e C I T( A ) ' s o r de r. In view o f t h e s a m e , not b e i n g s a t i s f i e d w i t h t h e c o r re ct n e s s a n d c o m p l e t e ne s s o f t h e b o o k s of a c co u n t o f t h e a s s es s e e , t he s a m e w e r e r e j ec t e d b y t h e A . O . u / s 1 4 5 ( 3 ) o f t h e A c t. Th e r e a f t e r t h e A.O. noted that dur i ng the rel evant peri od the assessee had d ebi ted e xpenses of Rs.46,35,97 1/- i n the manufacturi ng account on account of consumpti on of furnace oi l whi l e i n the precedi n g year such e xp enses were of Rs.49,28,410/-, When the assessee was getti ng conversi on made from steel bi l l ets to fl ats on job work basi s from thi rd parti es. As per t he A.O., thi s con sumpti on of furn ace oi l was on the hi gher si de. As per hi m t he producti on e xpenses of the assessee i ncreased to 13.9% as agai nst 7.81% i n the earl i er year and there was i n crease of 100% as far as 3 ITA No.1052/Chd/2010 A.Y.2007-08 manufacturi ng e xpenses were co ncerned. I f the credit notes i ssued by the pri nci pal suppl i ers of steel bi l l ets were reduced, the actual gross profi t rate of the assessee came do wn from 12% to 6.86%. As pe r the A.O., the net profi t sho wn by the assessee from sal es of Rs.7.5 crores was ver y much on the l o wer si de. He accordi ngl y consi dered gross profi t rate of 16% to be justi fi ed and reasonabl e gross profi t rate. I n vi e w of the provi si ons of secti on 145( 3) o f the Act he enhanced the sal e of the assessee to Rs.9,06,62,720/- and appl i cati on of gross profi t ra te of 16% on these enhanc ed sal es resul te d i nto tradi ng a ddi ti on of Rs.53,56,040/- whi ch was made by hi m to the i ncome of the assessee. F u r t h er t h e A. O . ma d e a d d i t i o n o f Rs . 72 , 6 2 , 9 8 3 /- on account of p r o f i t s f r o m a l l e g e d u n a c c o un te d s a l e o f s t e e l b i l l e ts . As per assessment order i n the quanti tati ve detai l s fi l ed duri ng assessment pr oceedi ngs the as sessee had worked out bal ance stock of steel bi l l ets as on 31.03.2007 as under:-
1) B i l l e ts se n t f o r r o l l i n g 1 6 6 3 . 2 3 2 0 M . Ts .
2) O pe n i n g S to ck 1 0 9 . 4 1 0 M . Ts .
To t a l 1 7 7 2 . 6 4 0 M . Ts .
L e s s : B i l l e t s se n t f o r r o l l i n g 1 6 6 3 . 2 3 0 M . Ts .
The A.O. observed that the assessee had sho wn sal e of bi l l ets wei ghi ng 61.310 M. Ts. Ho wever these sal es were not refl ected i n the books of accounts of the assessee. As per the A.O., as the ass essee had not di scl osed any stoc k of steel bi l l ets i n the audi t report fi l ed wi th the return whi ch meant that thi s stock was di sposed off after conv erti ng into 4 ITA No.1052/Chd/2010 A.Y.2007-08 fi ni shed products. The A.O. furth er brought out that duri ng the rel evant peri od the assessee had recei ved steel fl ats wei ghi ng 106.840 M. Ts. whi c h were obtai n ed out of unaccounted steel bi l l ets wei ghi ng 109.260 M. Ts . The A.O. observed that th ough thi s stock was i ncl uded i n quanti t y of steel fl ats recei v ed after convers i on but the sal e proceeds thereof had not been accounted for by the assessee. He worked out the total quanti t y of fi ni shed products out of the unaccounted steel bi l l ets as under:-
B a l a n ce st o c k o f bi l l e t s a s sh o w n i n s t a te me n t 1 0 9 . 4 8 0 M Ts .
L e s s : I n v i s i bl e l o ss @ 2 . 5 % 2 . 7 3 5 M Ts .
1 0 6 . 6 7 5 M Ts .
A d d S t o c ks o b t ai n e d by t h e a sse sse e o u t o f l a s t Y e a r ' s s t o ck o f ste e l l y i n g a s w i th r e - ro l l e r s 1 0 6 . 8 4 0 M Ts .
To t a l 2 1 3 . 5 1 5 M Ts .
P e r ce n t ag e o f f i n i sh e d p r o du c ts o b t ai n e d b y t h e a s se s se e o u t o f 2 1 3 . 5 1 5 M Ts . I n te r m s o f s te e l f l a t i n t h e r a ti o a s s h o w n i n t h e s t o c k s t a te m e n t 1 9 6 . 1 5 9 M . Ts .
S a l e v a l u e o f t h e fi n i s h e d p r o du c ts a t A ve r a g e s a l e v al u e o f R s . 3 7 0 2 6 / - P M T a s c a l c u l a te d by th e a s se s se e : Rs.72,62,983/-
Addi ti on of Rs.72,62,983/- was therefore made by him to the i ncome of the assessee.
4. B e f o r e t h e L d. CI T( A ) d e t a i l e d s u bm i s s i o n s w er e f i l e d b y t h e a s se s s e e , r ep r o d u c e d a t p a ra s 4 . 5 a n d 9 . 1 of t h e CI T( A ) o r d e r . A f t er c o ns i d e r i n g w hi c h th e C I T( A ) d e l et ed b o t h t h e additions made.
5. D u r i n g th e c o urs e o f h ea r i n g be f o r e u s, t h e Ld . D R h e a v i l y r e l i ed u p o n o n t h e f i n d i n g s o f t h e A . O . v i s - a v i s b o t h t h e i s s u e s . D r a w i n g o u r a tt e n t i o n t o t h e di s c r e p a n c y i n t h e b o o k s a s r e p r o d u c ed i n sh o r t b y t h e CI T( A ) a t p a r a s 5 ITA No.1052/Chd/2010 A.Y.2007-08 4 . 1 a n d 4 . 2 o f h i s o r d e r , t h e L d . D R s t a t e d t h a t i n v i e w of t h e s a m e , th e A .O . h a d r i g ht l y r e j e c t e d t h e b o o k s o f a c c o u nt o f t h e a s s e s s ee a n d m a d e a d d i ti o n b y a p p l y i n g gr o s s p r o f i t r a t e o f 1 6 % t o th e e n h a n c e d t u rn o v e r o f t h e a s se s s e e . O ur a t t e n t i o n w a s dr a w n t o p a r a s 4 . 1 a n d 4 . 2 of t h e CI T( A ) o r d e r r e p r o d uc i n g t h e d i s c r e p an c i e s f o u n d b y t h e A . O . i n t h e b o o k s o f a c co u n t l e a di n g t o th e r e j e c ti o n o f the b o o k s as under:
4.1 Brief facts of the case are that the appellant derives income manufacture sale of Leaf springs used in auto industries. The A.O called for and examined the quantitative details in respect of the head office i.e. Unit No.l and Unit No.2 of the appellant. From these details, the A.O. noted that in the opening stock of Unit No. 2, the appellant had shown quantitative details of raw material valued at Rs.7,73,206/-
whereas, the raw material valued at Rs.22,15,256/- has been shown in transit. The A.O. observed that from these details it appeared that even after a period of more than 2 ½ years these goods were still in transit. He further noted that the appellant had included the value of goods in transit in the opening stock whereas the weight of the raw material had not been taken into account in the quantitative stock details in the audit report filed with the return of income. He further came to observe that the appellant had only included the amount of Rs.22,15,256/- in terms of its value in the opening stock as on 01.04.2006 whereas its sale proceeds had not been accounted for in the books of accounts.
4.2 The A.O. further examined the manufacturing account of the appellant. The appellant had declared the gross profit rate of 12% on sales of 7,61,95,899/-. Observing that the appellant supplied leaf springs to various establishments engaged in the transport business within the country and that the appellant is the manufacturer of these vital components used in the auto industries involving high technique in its manufacturing process, he concluded that the margin of profit of 12% in this case in any circumstances could not be considered as reasonable. The A.O. brought out the following detailed reasons to point out that the stock details maintained by the appellant were defective:- 6 ITA No.1052/Chd/2010
A.Y.2007-08 (I) The appellant sent 44.70 M.Ts. of steel billets for conversion into flats on 30.03.2006. Against this it received 43.630 M.Ts. of steel flats on 11.12.2006. This was shown in the consolidated figure of purchases of material but this stock had not been taken into account.
(II) In the current year the appellant had claimed to have sold 61.310 M.Ts. of steel billets and this was not included in the month-wise details of goods sold during the year or the sale thereof in the gross turnover.
(Ill) The appellant had sent 1663.230 M.Ts. of steel billets for conversion to M/s Upper India Steel Ltd. against which 1637.239 M.Ts. steel billets were received which were the entire year's purchases. Though M/s Upper India Steel Ltd. had shown the receipt of 1609.170 M.Ts. of steels billets, the A.O. himself stated that the said company had reconciled this discrepancy in an amended statement. (IV) M/s Upper India Steel Ltd. had sent a certificate as per which 26.510 M.Ts. and 37.960 M.Ts. of steel billets were received from the appellant on 26.03.2006 and 30.03.2006 respectively which stock was returned after conversion in the first fortnight of April, 2006. As per the A.O., it was not clarified why these goods were omitted from previous statement. He further came to observe that these details proved that the appellant was having 64.470 M.Ts. of steel billets over and above 44.70 M.Ts. steel billets mentioned at Sr. No.l above which have not been accounted for by the appellant in its books of account.
(V) Steels billets weighing 106.840 M.Ts. obtained out of last year's stock had been included in the current year purchases but not included in the sales or closing stock of the previous year. (VI)In the stock statement for the accounting year 2005-06 filed during assessment proceedings balance stock of steel billets as on 31.03.2006 worked out at 121.753 M.Ts. (actual figure 105.753) but its quantity and value not shown in the closing stock.
(VII)In the stock statement for the accounting year 2006-07, the stock of steel billets in hand as on 31.03.200/ shown at 74.091 M.Ts. (actual figure 48.110 M.Ts.) but its quantity and value not shown in the closing stock.
(VIII)The appellant had not reflected billets weighing 109.410 M.Ts. valued at Rs.22,15,256/- in the audit report. It was explained before the A.O. that the value of this stock was duly added in the opening stock and that such consignment are recorded in separate stock register maintained. It was also submitted that there was no effect in profit & loss account. 7 ITA No.1052/Chd/2010
A.Y.2007-08 However, as per the A.O. this was a convenient method followed by the appellant for effecting sales outside the regular books of accounts.
(IX) Before the A.O., it was stated by the appellant that 109.410 M.Ts. of steel billets valued at Rs. 22,15,256/- shown as "goods in transit" as on 31.03.2006 had been delivered to M/s Upper India Steel Ltd. on 25/30.03.2006 for conversion. As per the A.O. this was mis-statement of facts on record because in addition to goods in transit of 109.410 M.Ts. appellant was having 105.753 M.Ts. of steel billets as on 31.03.2006. The A.O. therefore concluded that 109.410 M.Ts. of steel billets were actual in transit as on 31.03.2006 and received at appellant's premises after 31.03.2006.
(X) As per the A.O., the appellant admitted that the weight of closing stock of billets was not taken in the stock tally and this practice was being regularly followed by it. Since the weight of steel billets was not shown in the closing stock, the A.O. inferred that the valuation of there was also left out of the total value of the closing stock.
(XI) From the examination of the stock register of unit No.2, the A.O. found that the appellant consumed 101.262 M.Ts. of CRM Strips, Angel, Square and M.S. Bar valued at more than Rs. 35 Lacs approx. However, their weight had not been taken care of in the stock details as per audit report filed with the return of income.
(XII) The A.O. also found that in the month-wise details of purchases of steel billets and flats the total purchases had beenshownat1966.705 M.Ts. in the unit No.2. However, in the stock details given in the audit report filed with the return of income the purchases made during the relevant period had been shown at 1974.254 M.Ts.
(XIII)Further, as per the assessment order the appellant sent entire stock of current purchases of steel billets of 1663.230 M.Ts. for conversion against which 1637.239 M.Ts. steel flats were received, the balance being burning loss. The steel flats of1637.239 M.Ts. also included 106.840 M.Ts. out of stock of last year given to the processors. From this, the A.O. observed that the appellant disposed off last year's unaccounted stock in the current year and steel billets of equal weight still left with the appellant/processors."
6. O u r a t t e n t i on w a s a l s o d r a w n t o p a r a 4 . 4 o f t h e o r d e r w h e r e i n t h e ba s i s f o r ma k i n g t h e a d d i t i on b y t h e A . O . wa s d i s c u s s e d b y t he CI T( A ) a s u n d er :
8 ITA No.1052/Chd/2010
A.Y.2007-08 "4.4 The A.O. further noted that during the relevant period the appellant had debited expenses of Rs.46,35,971/- in the manufacturing account on account of consumption of furnace oil. Last year such expenses were of Rs.49,28,410/-. When the appellant was getting conversion made from steel billets to flats on job work basis from third parties, as per the A.O., this consumption of furnace oil was on the higher side. As per him the production expenses of the appellant increased to 13.9% as against 7.81% in the earlier year and there was increase of 100% as far as manufacturing expenses were concerned. If the credit notes issued by the principal suppliers of steel billets were reduced, the actual gross profit rate of the appellant came down from 12% to 6.86%. As per the A.O., the net profit shown by the appellant from sales of 7.5 crores was very much on the lower side.
He accordingly considered gross profit rate of 16% to be justified being reasonable gross profit rate. In view of the provisions of section 145(3) of the Act he enhanced the sale of the appellant to Rs.9,06,62,720/- application of gross profit rate of 16% on these enhanced sales resulted into trading addition of Rs.53,56,040/- which was made by him to the income of the appellant."
Th e L d . D R , r e l y i n g o n t h e a b ov e f i n di n g s o f th e AO v e h e m e n t l y s u p po r t e d t h e a s s e ssm e n t o r d er .
7. Th e L d . c o u n s e l fo r a s s e s s ee , o n th e o t h e r h a nd , st a t e d t h a t t h e L d .CI T( A ) h a d f o u n d eac h a n d e v e r y di s c r e p a n c y p o i n t e d o u t by t h e A . O . t o b e o f n o c o n s e q ue nc e h a v i n g d i s c u s s e d e a ch o f t h e m i n h i s o r d e r an d ha d , t h e r e f o r e, r i g h t l y d e l et e d th e a d d i t i o n s o ma d e a f t e r d i s m i ssi n g t h e a c t o f t h e A . O . o f r e je c t i n g t h e b o ok s o f a c c o u n t o f t he a s s e s s ee u / s 1 4 5 ( 3 ) o f t he A c t . O u r a t t e nt i o n w a s d r a w n t o p a r a s 5 t o 8 o f t h e C I T( A ) o r d e r d i s c u ss i n g e a c h d i s c re p a n c y as under:
"5. I have carefully considered the contention of the Ld counsel for the appellant, submissions of the Assessing Officer and perused the relevant record. The A.O. has rejected the books of the appellant and applied the provisions of section 145(3) of the Act on account of various alleged discrepancies which have been also brought out in the preceding paras of this appellate order. The first such 9 ITA No.1052/Chd/2010 A.Y.2007-08 objection of the A.O. is that the appellant has included the value of goods in transit in the opening stock whereas the weight of raw-material has not been taken into account in the quantitative stock details in the audit report filed with the return of income. As explained in the written submission of the Id. Counsel, there is no such discrepancy on the basis of which adverse inference could be drawn against the appellant. As further discussed in the written submission, these goods in transit are steel billets weighting 44.70 M.Ts., 26.510 M.Ts. and 37.960 M.Ts. aggregating to 109.67 M.Ts. which were the purchases of the immediately preceding year and sent to M/s Upper India Steel India Ltd. for conversion on 30.03.2006, 26.03.2006 and 30.03.2006 respectively. After conversion the corresponding steels flats were received during the period relevant to assessment year under consideration. The steel flats received after conversion during the relevant period have been shown to be duly consumed during the said period. The position is verifiable from the record including the excise record maintained by the appellant. This is explained in detail in the written submissions of the Id. Counsels which have been reproduced above. Therefore, once the steel flats obtained after conversion of these steel billets have been duly accounted for in the sales/consumption of the appellant, there is no ground to draw any adverse inference against the appellant in this regard. It may also be mentioned that the manufacturing units of the appellant are covered by Central Excise, wherein, day-to-day details of purchases and consumption of various goods are maintained. Steel flats obtained from conversion of 109.67 M.Ts. of steel billets having been duly accounted for in this excise record also there is further no cause for taking any adverse view on this issue.
5.1 The next allegation of the A.O. is that sale proceeds corresponding to the opening stock valued at Rs.22,15,256/- mentioned above have not been accounted for in the books of accounts of the appellant. This is the value of 109.67 M.Ts. of steel billets which was shown in the closing stock of 31.03.2006 and opening stock of 01.04.2006 as "goods in transit". As mentioned in the preceding paras this stock was sent to M/s Upper India Steel Ltd. for conversion in the preceding year and appellant received 106.40 M.Ts. of steel flats out of the same during the current year. As per the A.O. this is not included in the sale value of 2114.771 M.Ts. of finished goods. However, as already discussed in the preceding paras the steel flats weighing 106.40 M.Ts. corresponding to this stock have been duly accounted for in books of the appellant including the excise record. Therefore, the A.O. cannot be said to be justified in observing that this discrepancy was not explained.
5.2 The next point raised by the A.O. is again with regard to 44.70M.Ts. of steel billets sent for conversion into flats on 30.03.2006. The A.O. has taken the adverse view of the fact that whereas in the consolidated figure of purchases 10 ITA No.1052/Chd/2010 A.Y.2007-08 the quantity of steel flats received after conversion weighting 43.630 M.Ts. have been shown as current year purchases this has not been included in the details of month- wise purchases of material. As the A.O. has himself mentioned in Para 4(1) the appellant has rightly not done so. However, the quantity of 43.63 M.Ts. having been taken into account in the consolidated figure of purchases, its consumption stands duly accounted for. As per the details brought on record and the explanation given by the Id. Counsel in the written submissions, out of the steel billets weighing 109.410 M.Ts. sent for conversion in the immediately preceding year (which includes the said stock of 44.70 M.Ts.) and 1667.930 M.Ts. sent during the relevant period the appellant received 1601.849 M.Ts. of steel flats during the period relevant to assessment year under consideration. Sales/consumption of this material having been duly shown in the books of accounts of the appellant including the excise record it cannot be said that the sales of 43.63 M.Ts. of steel flats obtained from 43.630 M.Ts. of steel billets has not been accounted for by the appellant.
5.3 The next objection of the A.O. is that the sale of 61.310 M.Ts. of steel billets is not included in the month-wise details of goods sold during the year or the sales thereof in the gross turnover. By filing details of month-wise sales during the period 01.04.2006 to 31.03.2007 the appellant has however shown that billets weighing 61.300 M.Ts. were sold in December, 2006 for Rs.13,93,961.50. In the written submissions of the Id. Counsels which have been reproduced above, it has been explained in detail as to how the purchases of this raw-material being 61.300 M.Ts. were made and how the sales of the same were made. These sales were made by the appellant vide Bill No. 192 dated 07.12.2006 and Bill No. 216 dated 31.12.2006 to M/s Sonu Forgings, Ludhiana for Rs.2,35,949.50 and for Rs.11,58,012/- to M/s Emson Tools Manufacturing Corporation, Ludhiana. All these sales have been shown to be duly recorded in the sales account of the appellant (net after VAT and ED). As further explained in the written submissions the A.O. even called for information u/s 133(6) of the Act from M/s Emson Tools Manufacturing Corp., Ludhiana. As per the copy of account of the appellant obtained from M/s Emson Tools by the A.O. (a copy of which has been filed by the appellant during the appeal proceeding also) these sales are duly verifiable. Therefore, this objection of the A.O. is also not a valid objection.
5.4 The next objection raised by the A.O. as mentioned in the preceding paras need not be taken up here because the A.O. has himself mentioned at end of Para 4(3) that:-
"M/s Upper India Steels has reconciled this discrepancy in a amended statement."
5.5 The A.O. himself observing as above this need not be considered as a discrepancy required to be explained. 11 ITA No.1052/Chd/2010
A.Y.2007-08 5.6 The next discrepancy pointed out by the A.O. is again with regard to the steel billets weighing 64.420 M.Ts. sent for conversion in the immediately preceding year. This stock is also included in the stock of steel billets of 109.67 M.Ts. discussed in the preceding paras while dealing with the alleged discrepancy of 44.70 M.Ts. of steel billets. For similar reasons as discussed while dealing with that issue, here again the adverse inference drawn by the A.O. is not sustainable.
5.7 The discrepancy taken up by the A.O. next in the assessment order is that steel billets weighing 106.40 M.Ts. obtained out of last year's stock had not been included in the current purchases. As already mentioned these are the steel flats obtained out of steel billets weighing 109.67 M.Ts. sent for conversion in the immediately preceding year. The position with regard to the entire steel flats obtained after conversion of 109.67 M.Ts. of steel billets having already been shown to have been consumed/sold as discussed in the preceding paras, again no adverse inference could be drawn on this objection of the A.O. 5.8 The next two objections of the A.O. are that steel billets shown to be available with the appellant at 121.753 M.Ts. as on 31.03.2006 and 74.091 M.Ts. as on 31.03.2007 have not been reflected in the closing stock of 31.03.2006 and closing stock of 31.03.2007 respectively. These objections of the A.O., as explained in the written submissions of Ld. Counsel appear to be quite misplaced. During appeal proceedings details of closing stock as on 31.03.2006 and 31.03.2007 have been furnished. As per these details the appellant has worked out the closing stock of billets as on 31.03.2006 and 31.03.2007 as under:-
Particulars/Asstt. Year 31.03.2006 31.03.2007
1.Billets sent for rolling 770.220 1663.230 Add: Opening Balance - 109.410
--------------- --------------
Total Billets 770.220 1772.640
Billets received after rolling 648.670 1637.239
Balance 121.753 135.401
Billets Sales - 61.310
Balance 121.753 74.091
Stock in transit 109.410 32.665
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Burning Loss 12.343 41.426
From these details it is amply clear that 121.753 M.Ts. is not the closing stock of steel billets as on 31.03.2006.
Rather this is just an intermittent figure which worked out for calculating the final position of closing stock of billets etc. As on 31.03.2006 the actual stock of steel billets is 109.410 12 ITA No.1052/Chd/2010 A.Y.2007-08 MTs. (shown as "stock in transit") which, as already discussed, has been duly accounted for both in terms of value and quantity. Therefore, 121.753 M.Ts. is not the closing stock of steel billets as on 31.03.2006. Similarly, figure of 74.091 M.Ts. does not represent the closing stock of steel billets as on 31.03.2007. Such closing stock is only of 32.665 M.Ts. which came after accounting for burning loss of 41.426 M.Ts. Therefore here also there is no case for drawing adverse inference considering the figure of 74.091 M.Ts. to be the closing stock of steel billets as on 31.03.2007. Therefore both these objections of A.O. are further not sustainable. 5.9 The next objection of the A.O. is on account of non- reflection of billets weighing 109.410 M.Ts. valued at 22,56,215/-. This is again in respect of 109.67 M.Ts of steel billets sent for the conversion in the corresponding value of Rs.22,15,215/- having been duly shown in the closing stock of the appellant as on 31.03.2006 and opening stock as on 01.04.2006 and the steel billets obtained after conversion during the relevant period having been duly accounted for (which is also discussed in the preceding paras) again the accounts of the appellant could not be faulted on this ground.
5.10 The A.O. has again referred to the steel billets weighing 109.410 M.Ts. valued at Rs.22,56,215/- shown as goods in transit as on 31.03.2006. The position with regard to this issue having already been explained in the preceding paragraph this need not be discussed again in detail here. 5.11 Further, I do not agree with the A.O. that because weight of closing stock of billets is not taken in the stock tally the valuation thereof is left out of the total value of the closing stock etc. For coming to such a conclusion the entire factual position was required to be examined. In the case of the appellant though in the details of closing stock as on 31.03.2006 steel billets weighing 109.410 M.Ts. have not been shown in quantity it is not disputed that its value being Rs.22,15,256/- is very much reflected in the closing stock and shown as "goods in transit". The quantity of steel flats obtained from conversion of this quantity of steel billets having been shown to be duly accounted for, as already discussed, it is clear that this manner of accounting for by the appellant is not resulting into any under statement of income. Therefore, here again I am not inclined to agree with the A.O. that this could be taken to be a defect resulting into rejection of the accounts of the appellant u/s 145(3) of the Act. 5.12 The next objection of the A.O. is in respect of not reflecting the qualitative details of purchases of CRM Strips, Angle, Square and M.S. Bar etc. 5.13 As explained in the written submissions of the Id. Counsels, these are in the nature of consumable stores. It is further explained that the total consumption of these items is 40.682 M.Ts. as against that wrongly considered by the A.O. 13 ITA No.1052/Chd/2010 A.Y.2007-08 at 101.262 M.Ts. As rightly pointed out in the written submissions of the Id. Counsels quantitative details in respect of such consumable stores are generally not reported in the audit report. I agree with the Id. Counsels that just because quantitative details in respect of this consumable store has not been reflected in the audit report no adverse inference could be drawn against The appellant unless some purchases of such consumable stores shown to be ingenuine etc. However in the case of the appellant it has not been shown if any purchases of these consumable stores were either non verifiable or otherwise ingenuine. Therefore, the adverse inference drawn against the appellant on account of just non reflection of quantitative details of these consumable stores in the audit report is not maintainable.
6. As explained in the written submissions of the Id. Counsels reproduced above this observation of the A.O. is also not factually correct. The quantity of 1974.254 M.Ts. reported as per annexure 'VHP of the audit report of unit No.2 is explained to be consisting of purchases of steel flats and receipt of flats after conversion from rerollers i.e. M/s Upper India Steel Ltd., Ludhiana (i.e. 337.015 MTs + 1637.239 M.Ts. = 1974.254 M.Ts.). Quantity of 1966.705 M.Ts in Unit 2 represents current purchases of steel flat and billets for total consideration of Rs.4,51,95,687/86 after reducing the quantity of closing stock of billets. This is as per following details:-
Total Purchases of Billets 1663.230 M.Ts.
Total Purchase of Flat 337.015 M.Ts.
Less closing stock shown 32.665 M.Ts.
Approx. 1966.705 M.Ts.
This position is very much verifiable from books of accounts of the appellant and excise register being register 23A Part I etc. Therefore, this alleged discrepancy pointed out by the A.O. is not sustainable.
7. It may be further mentioned that any non accounting of sales by the appellant or inflation of purchases or expenses would have brought down the gross profit rate and the net profit rate as per the manufacturing and P&L account of the appellant. On the contrary, as explained in the written submissions reproduced above, the book results of the appellant for the assessment year under consideration are rather better than the results in the preceding years. The gross profit rate of the appellant for the assessment under consideration before trade discount is shown to be 12.01%. This is better than similar G.P. rate of 11.35% and that of 8.47% obtained in the A.Y. 2006-07 and A.Y. 2005-06 respectively. The assessment for the Assessment Year 2005- 06 in this case is shown to be completed u/s 143(3) of the Act wherein such gross profit was 8.47% only. Similar is the position of G.P. rate (after trade discount) at 6.77% for the assessment under consideration which is far better than the G.P. rate of 0.88% and of 5.12% in the assessment year 2005- 14 ITA No.1052/Chd/2010 A.Y.2007-08 06 and 2006-07 respectively. The position of net profit rate is also not different. Net profit rate shown by the appellant for the assessment year under consideration is 0.58% whereas the net profit rate in the A.Y. 2006-07 and A.Y. 2005-06 was 0.49% and 0.27% respectively. These results coupled with the explanation of the appellant discussed above with regard to various alleged discrepancies pointed out by the A.O. further show that there is no valid ground in this case for holding the accounts of the appellant to be defective and applying the provisions of section 145(3) of the income Tax Act. It is also noted that while deciding this issue the A.O. has been influenced by the fact that the appellant is supplying leaf springs to various parties engaged in transport business within the country and that leaf springs manufactured by the appellant is a vital component in the auto industry which involves high technique in its manufacturing process. As per the A.O. the margin of profit of 12% under no circumstances could be considered to be reasonable in such a case. In my opinion these reasons considered by the A.O. are not sustainable in the absence of any evidence that the appellant did make certain purchases or sales outside the books of accounts or that the purchases/expenses have been inflated etc. Admittedly no evidence in this regard is brought on record. The observations of the A.O. with regard to increase in the manufacturing expenses would also not hold keeping in view that trading/manufacturing results for the assessment year under consideration are better than similar results in the preceding years and further there is no evidence of any expenses having been incurred by the appellant to be ingenuine etc.
8. In the view of discussions I am not inclined to agree with the A.O. that the books of account of the appellant were not correct or complete and that therefore, the provisions of section 145(3) were applicable. Therefore, computation of income by the A.O. by applying these provisions is held to be not maintainable. Accordingly, additions of Rs.53,56,040/- made by enhancing the turnover and applying the G.P. rate of 16% is deleted. This ground of appeal is therefore allowed."
8. O u r a t t en t i o n wa s a l s o d r a w n to p a r a s 1 0 t o 10 . 2 o f the order d e l e ti n g the a d d i t i on made on account of u n a c c o u n te d s a l e s o f s te e l b i l l e t s a s u n d e r:
"10. I have carefully considered the contention of the Ld. Counsels for the appellant and perused the relevant record. The observation of the A.O. that entry with regard to sale of 61.310 M.Ts. of steel billets claimed to be made by the appellant during the relevant period is not reflected in the books of accounts, as discussed in the preceding paras, has been found to be not factually correct. This issue has been explained in detail in the written submissions of the appellant reproduced above in respect of ground of appeal No.4 and also in the discussions made while dealing with that 15 ITA No.1052/Chd/2010 A.Y.2007-08 ground in the preceding paras. Sale and purchase of this quantity of steel billets is also sale of the same to one party M/s Emson Tools Manufacturing Corporation was shown to be even got verified from that party directly by the A.O. Therefore no adverse inference is to be drawn against the appellant and also sale of the same to one party M/s Emson Tools Manufacturing Corporation was shown to be even got verified from that party directly by the A.O. Therefore no adverse inference is to be drawn against the appellant in respect of this observation of the A.O. 10.1 With regard to the observation that the appellant had not accounted for billets weighing 109.480 M.Ts. reflected in the closing stock of 31.03.2006 and steel flats weighing 106.840 M.Ts. received after conversion of the same during the relevant period again this alleged discrepancy has been discussed in detail while dealing with the ground of appeal No.4 in the preceding paras. As already discussed the stock of 109.480 M.Ts. of steel billets as on 31.0-3.2006 were shown as goods in transit in the stock position depicted on 31.03.2006. This stock was sent to M/s Upper India Steel India, Ludhiana by the appellant in the immediately preceding year and that the stock of steel flats after conversion were received during the period relevant to assessment year under consideration at 106.675 M.Ts. The difference in the two figures i.e. 106.675 M.Ts. and 106.840 M.Ts has been explained in the submissions of the Id. Counsels reproduced above and which is on account of difference in the weighment at the appellant's end and at the end of M/s Upper India Steel Ltd. Therefore in view of the above factual position it is quite clear that both 109.480 M.Ts. of steel billets as on 31.03.2006 and steel flats received out of the same at 106.675 M.Ts. are very much recorded in the books of accounts. This issue has also been discussed while dealing with the ground of appeal No.4 wherein it is duly brought out that steel flats of 106.840 M.Ts. have been entered in the relevant excise record after being received from M/s Upper India Steel Ltd. and accounted for in the books of accounts of the appellant. In view of the above it is quite clear that the conclusion of the A.O. that steel flats weighing 213.515 M.Ts. had not been accounted for and that the goods manufactured out of the same had been sold by the appellant outside the books of accounts is completely mis-founded. As has been explained in detail in the written submissions of the Id. Counsels both the figures of 106.675 M.Ts. and 106.840 M.Ts. are in respect of the same stock of steel flats received by the appellant during the relevant period after conversion of 109.480 M.Ts. of steel billets sent to M/s Upper India Steel Ltd. in the immediately preceding year. In addition to the above factual position, as discussed while dealing with the ground of appeal No.4 above, the fact that trading/manufacturing results of the appellant are better than those in the preceding years would further show that there were no sales outside the books of accounts by utilizing the material purchased in the books. This is so 16 ITA No.1052/Chd/2010 A.Y.2007-08 because any such act would have brought down the trading results and which is not the position in this case. Further, there is nothing on record to show that appellant did sell any products outside the books of accounts.
10.2. Keeping in view the above discussed position the addition of Rs. 72,62,983/- made by the A.O. cannot be sustained and the same is accordingly deleted. This ground of appeal is therefore also allowed."
9. Th e L d . c o u n s e l f o r a s s e s s e e, t h er e f o r e , c o nt e n d ed t h a t in view of t he d e t a i l ed and w e l l - r e as o n e d or d e r of the L d . CI T( A ) d e a l i ng w i t h e a c h a n d e v e r y f a c t u al c o n t e n t i o n of t h e A . O . an d f i nd i n g t h e m t o b e o f n o c o n s eq u e nc e a n d t he s a m e h a v e n o t be e n c o n t r o v er t e d b y t h e L d . D R , t h e r e w a s n o r e a s o n a t a l l t o i n t e rf e r e i n t he o r d e r of t h e CI T( A ) .
10. W e h a v e h e ar d th e r i v al c on t e n t i o n s a n d p e ru s e d t he o r d e r s of t h e a u th o r i t i e s b e l o w. As i s e v i d e n t f r o m t h e o r de r o f t h e L d . CI T( A ) a s r e p r o d u c e d a b o v e v i s - à - v i s b o t h t h e i s s u e s o f a d d i t i on m a d e o n a c c o un t o f a p p l i c a ti o n o f G P r a t e of 16% on enhanced t u r n o v er after r e j e c t i ng books of a c c o u n t o f t he as s e s s e e a n d al s o o n a c co u n t o f un a c c o u n t ed s a l e s o f s t e e l b i l l e t s , t h e L d . CI T( A ) h a s d e a l t w i th i n d e t a i l w i t h e ac h a nd ev e r y d i s c r e p an c y n o t e d b y t h e A. O . i n h i s a s s e s s m e nt o r d er a n d g i v e n d e t ai l e d r e a s o ns w h y h e f o u n d t h e m t o b e i n co rr e c t o r o f n o re l ev a n c e o r c o ns e qu e n c e . Th e L d . D R h as n o t b e e n a b l e t o p oi n t o u t a ny i n fi rm i t y i n t h e f a c t u a l f i n d i n gs o f t h e L d . CI T( A) w h i l e d e l e t i n g t h e a b o ve a d d i t i o n s. I n v i e w o f t h e s a m e, we agree w i th t h e L d . counsel f or a s se s s e e that the Ld.CIT(A) has allowed the assessee's appeal by passing a detailed and well-reasoned order which has remained uncontroverted before us. We, therefore, do not find any reason to interfere in the same and the same is, 17 ITA No.1052/Chd/2010 A.Y.2007-08 t h e r e f o r e, u p h e l d . G r o u n d o f a pp e a l N o s . 1 a n d 2 r a i s e d b y t h e R e v e nu e a r e, t h e r e f o re , d i s m i s s e d .
11. G r o u n d o f a p p e al N o . 3 r a i s e d b y t h e R e v e n u e r e ad s a s under:
"3. That the Id. CIT(A)-2 has erred in law and on facts in deleting the addition of Rs.11,00,200/- on account of unexplained loans/ deposits and disallowance of Rs.1,32,384/- on account of interest on unsecured loans of Rs.11,00,200/-."
12. Th e a b o v e g r o u nd r e l a t e s to d e l et i o n o f a d di t i o n m a d e o n a c c o u nt o f une x p l a i n e d c a s h cr e d i t s u /s 6 8 of t h e A c t .
13. B r i e f f a c t s r e l ati n g t o t h e i s s ue a r e t h a t f r o m t h e e x a m i n a t i o n o f t h e i n f o r m a t i on f i l e d w i t h r e t u rn o f i n c o m e a n d t h e a c co u n t b o o k s o f t he a ss e s s e e , t he A . O . f o u n d t h at the a s se s s e e ha d i n t ro d u c e d in its a c c o un t s u n s e c ur e d l o a n s a s p e r f ol l o w i n g d e ta i l s :
Name of the person Date of Amount of unsecured deposit loan/deposit (In Rs.) Amit Kumar Goyal 19.3.2007 50,000/-
(HUF),Mlk
Ajay Kumar Goyal 19.3.2007 89,700/-
(HUF),Mlk
Sanjay Kumar Goyal 27.4.2006 74,000/-
(HUF),Mlk
10.2.2007 1,95,000/-
K.K.Goyal (HUF).Mlk 18.4.2006
31.3.2007 74,000/-
98,000/-
Namit Modi, Mlk 29.7.2006 1,15,500/-
3.1.2007 98,000/-
Amit Modi, Mlk 29.7.2006 1,16,000/-
3.1.2007 97,500/-
Ajay Kumar Goyal.Mlk 20.10.2007 95,000/-
TOTAL: 11,03,200/-
18 ITA No.1052/Chd/2010
A.Y.2007-08
14. These deposi ts were noted by the A.O. to be of the fami l y members of the partners o f the assessee fi r m and al so of Shri Ani l Ku mar Go yal , Part ner. Th e A.O. asked the assessee to prove these cash credi ts. The A.O. noted that i n spi te of hi s aski ng to produce these credi tors none of them was produced before hi m. The A.O. further found that these amounts were advanced by the sai d credi tors out of the al l eged commodi t y profi ts recei ved from M/s Pri me Commodi ti es, 78 La jpat Nagar, Ludhi ana and M/s Ajanta Commodi t y Servi ces, 320 Ki dwai Nagar, Ludhi an a. Though e xtracts from the bank accounts o f the deposi tors and copi es of thei r personal accounts from the books of M/s Ajanta Commodi t y Servi ces and M/s Pri me Commodi ti es i n the case of fe w deposi tors were fi l ed before the A.O., none of them is stated to have been produced for veri fi cati on of transacti ons of l oans. I t was ho wever i nformed to the A.O. that al l these deposi tors were e xi sti ng i ncome t a x assessees and that the y had suffi ci ent funds i n thei r names. Later on confirmati ons from these deposi tors were al so fi l ed. The A.O. obs erved that the assessee del i beratel y omi tted to refer to the fa ct that the deposi ts in the hands of these credi tors came from commodi t y profi t. As per the A.O. i n the case of these deposi tors the cr edi ts i n thei r ba nk accounts had appeared on account of so cal l ed commodi t y profi t whi ch i n the case under reference was not e xi sti ng. The share broke rs i nvol ved were al so not produced before the A.O. As per the A.O. the i nqui ri es made b y hi m i n respect of M/s Pri me Co mmodi ti es, 78 La jpat Nagar, Ludhi ana ,reveal ed that thi s concern never 19 ITA No.1052/Chd/2010 A.Y.2007-08 e xi sted at the gi ven address. The A.O. al so wond ered as to why the propri etor/partner of M/s Ajanta Commodi t y Servi ces shoul d have any hesi tati on to gi ve evi dence based on hi s books of accounts. The A. O. came to obser ve that the assessee had bee n regul arl y and consi stentl y year after year i ntroduci ng i n i t s books of accou nts deposi ts i n t he names of the fami l y mem bers of the par tners regul arl y and in a pl anned manner to bui l d up capi tal i n thei r respecti ve hands and reduce the ta x l i abi l i t y i n hi s o wn case by provi di ng i nterest on such l oans whi ch i nvari abl y came from so cal l ed commodi t y profi t provi ded etc. The A.O., therefor e, was not sati sfi ed about t he sources of de posi ts and the g enui neness of the transac ti ons in respe ct of these c redi ts. He accordi ngl y hel d that the total amount of Rs.11,00,200/-
menti oned above had been deposi ted by the assessee out of i ts o wn i ncome from undi scl osed sources. Thi s am ount was, therefore, added to the i ncome of the assessee.
15. B e f o r e t h e L d . CI T( A ) , d e t a i l ed su b m i s s i o ns w er e f i l ed b y t h e a s s e ss e e , a f t e r c o n si d e r i ng w h i c h t h e a d d i t i o n m ade was d e l et e d h ol d i n g t h at mere non a t te n d a n ce or n on p r o d u c t i on o f cre d i t o r s f o r e x ami n a t i o n , i g n o r i n g t h e o t h er evidence could not be the basis for not a c c ep t i n g the c r e d i t s . R e l ev a n t f i n d i ng o f t h e CI T( A ) a t p a ra s 12 t o 1 2 . 2 of t h e o r d e r o f CI T( A ) i s a s u n d e r :
"12. I have carefully considered the contention of the Id. Counsels for the appellant and perused the relevant record. It is seen that in this case the creditors mentioned above are existing income tax assessees. The appellant filed before the A.O. the confirmations from these creditors and extracts of their respective bank accounts were also filed. The A.O. was 20 ITA No.1052/Chd/2010 A.Y.2007-08 not satisfied about these creditors monthly the ground that they were not produced for examination. Other fact which was-considered adversely by the A.O. was that brokers i.e. M/s Ajanta Commodity Services and M/s Prime Commodities through whom the creditors had earned commodity profits were not produced before the A.O. However, just non-attendance or non-production of the creditors for examination ignoring the other evidence could not be made the basis for non-accepting these credits. It is particularly so where fall these creditors are admitted to be existing income tax assessees. If these creditors were not produced by the appellant, they could have been called by issuing summons etc. However non-attendance, in the face of the other evidence brought on record coupled with the fact that they are existing income tax assessees, cannot be made a valid ground for dis-satisfaction about the evidence brought on record in this regard. Though the A.O. did make inquiries in respect of the brokers M/s Prime Commodities and the inquiries allegedly revealed that M/s Prime Commodities never existed at business on 31.03.2009. The fact that this firm was operating from the given address i.e. 78 Lajpat Nagar, Ludhiana is further evidenced from the fact that rent for this premises has been paid by the said concern upto the period of 31.03.2009. In the face of this factual aspect i.e. the said concern is an existing income tax assessee and that it paid the rent for the said premises for the relevant period would show that the extreme adverse inference drawn by the A.O. in respect of this concern was not in order. In his written submissions the Id. Counsels have placed reliance upon a number of decisions. Taking into account the evidence brought on record by the appellant being affidavits and confirmations from the creditors and copies of their relevant bank accounts and further taking into account that all these creditors are existing income tax assessees having sufficient funds in their names, the ratio of these decisions does help the case of the appellant in respect of this ground.
12.1 Further the final conclusion drawn by the A.O. in respect of this addition is that un-accounted income of the appellant has been introduced in the books of the appellant in the names of these family members and its partners. It is settled position by now that such inference could not be drawn unless there is evidence to establish that the sources of the creditors, deposits flew from the appellant itself. The decision of Hon'ble Rajasthan High Court in the case of Aravali Trading Co. (supra) which has been referred to by the Id. Counsels in the written submissions squarely covers the issue in favour of the appellant.
12.2 Keeping in view the above discussed factual and legal position I am not inclined to agree with the A.O. that he had sufficient grounds for his dissatisfaction about the sources of deposits and the genuineness of the transactions in respect of all these cash credits. The addition of Rs.11,00,200/- is therefore deleted and this ground of appeal is allowed."
21 ITA No.1052/Chd/2010
A.Y.2007-08 1 6 . B e f o r e u s , t h e Ld . D R h e a v i l y r el i e d u p o n t h e o rd e r o f t h e A . O . a n d po i n t e d o u t t h at t he c r e d i t o rs h a d cl a i m e d t h e s o u r c e o f t h e l o an s g i v e n b y t h e m a s b e i n g f r o m c o m m o d i t y p r o f i t s e a rn e d fr o m M / s P r i m e C o m m o d i t i es an d A j a n t a C o m m o d i t y S e r vi c e , w h i ch c o u l d n o t b e pr o v e d by t h e m by w a y o f a n y e v i d en c e i n t h i s r e g a rd a n d f u r t h e r t he f a c t t h a t t h e s e c o m m o di t i e s s e r v i c e p r o vi de r w e r e f o u n d no t e x i s t i n g o n e n q u i r y m a d e b y t h e A .O . l e n d c r e d e n c e t o t h e f i n d i n g of t h e A . O . t h a t th e c r e d i t s w e re n o t g e nu i n e . Th e L d . DR f u r t h e r p oi n t e d o u t t h a t d e sp i t e s e v e r a l o p po r t u ni t i e s g i v en t h e a s s e s s ee h ad e v e n f a i l ed t o p r o d u c e t h e cre d i t o r s f or e x a m i n a t i o n an d c o n s i de r i n g a l l t h e a b o v e f a c ts t h e A . O . h a d r i g h t l y h e l d t h e s a i d c r e d i ts t o b e u n e x p l ai n e d a n d m a d e a dd i t i o n of t h e s a m e t o th e i n c om e o f t he a s s e ss e e . Th e L d . D R f urt h e r s t at e d t ha t t h e L d .CI T( A ) h a s r e l i e d u p o n t h e d ec i s i on o f t h e H on ' b l e R a j a s t h a n H i g h C o u r t i n t h e c a s e o f A ra wa l i Tr a d i n g C omp a n y t o ho l d t hat t h e i ss u e w a s s q u a r el y c ov e r e d i n fa v o u r o f t h e a s se s s ee b y t h i s d e c i s i o n . I n t h i s r e g a r d , t h e L d . D R p o i n t e d o ut t h a t t h e H o n ' b l e A pe x C ou r t h a d l o ng b ac k s e t t l e d t h e po s i t i o n of l a w v i s - à - vi s u ne x p l a i n e d ca s h cr e d i t s t h a t th e on u s r e s t e d o n t h e a s s e s se e t o p r o v e t h e g e nu i n e n e s s o f t h e sa m e i n t he c a s e o f CI T v s P . M o h a n a K al a & O r s . 2 9 1 I TR 2 7 8( S C ) .
17. Th e L d . c o u n s e l f o r a s s e s s e e, o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r of t h e CI T( A ) .
18. We have h e a rd the rival c o n te n t i o n s , p e r us ed the o r d e r s of t he a ut h o r i t i e s b e l o w . Th e i s s u e b ef o r e u s r el a t es 22 ITA No.1052/Chd/2010 A.Y.2007-08 t o g e n u i n e n e ss o f t h e l o a n s s h o wn i n t h e b o o k s o f a c c o u n t of the a s s e s see a m o u n ti n g to R s . 1 1 ,0 0 , 2 0 0/ - . It is necessar y fi rst to bri ng out cl ea rl y the facts of the case. That the assessee had taken l oans/deposi ts from the aforestated parti es amounti ng i n al l to Rs.11,00,200/- is not di sputed. That the y were al l ei ther rel ati ves of the partners or a partner of the assessee fi rm, i s al so not di sputed. Further wi th respect to al l the above parti es, the assessee ,i n di scharge of i ts onus of provi ng the genui neness of the transacti on had fi l ed the fol l o wi ng documents:
1.Confi rmed copy of account of the credi tors
2.Bank state ment of the c redi tors sho wi ng advance made through banki ng channel s
3.Brokers Note of profi t earned on commodi t y transacti on by the credi tors which was attri buted as source of maki ng the advance/l oan by the credi tors.
4.Copy of I ncome Ta x Return an d computati on of i ncome of the i mpugned year of the credi tors.
19. The i ni ti al onu s on the asse ssee of provi ng the genui neness of t he transacti on st ood di scharged b y fi l i ng the above documents . The i denti t y wa s never i n questi on as the credi tors were admi ttedl y rel ati ves of partners or a partner of the assessee fi rm i tsel f. The genui neness stood establ i shed by de monstrati ng that the transacti on took pl ace through banki ng channel s. As for credi t worthi ness of the credi tors, demonstrati on of the f act that the sou rce of the advance/l oan was commodi t y pro fi t earned by the credi tors proved thei r credi t worthi ness al so.
20. Thereafter we fi nd that i nqui ries made by the AO regardi ng the genui neness of the source /credi t worthi ness of 23 ITA No.1052/Chd/2010 A.Y.2007-08 the credi tors rev eal ed that one o f the brokers, M /s Pri me Commodi ti es, 78, La jpat Nagar, Ludhi ana, never resided at the stated address. Vi s a vi s the other broker, M/s Ajanta Commodi t y Servi ces. Ludhi ana, the A.O. stated that the y coul d have gi ven evi dence based on thei r books of accounts. Meani ng thereby that even the sai d broker di d not confi rm the transacti on wi th the credi tors. In the l i ght of thi s i nformati on reveal ed by the i nqu i ri es conducted by the AO, the credi t worthi ness of the credi tors was shaken and thus remai ned unproved.
21. We do not fi nd any meri t i n t he contenti on o f the Ld.Counsel for t he assessee that si nce al l the cre di tors were i ncome ta x assesses and thei r returns of i ncome for the i mpugned year was fi l ed thei r credi t worthi ness stood establ i shed. The reason bei ng that thi s fact al one does not establ i sh credi t worthi ness. From the returns fi l ed of al l the credi tors, we fi nd, that the y have al l sho wn i ncome from i nterest recei ved from the assesseess fi rm onl y, whi ch we fi nd was recei ve d at the end o f the year. The refore the i ncome refl ected i n the return coul d not have possibl y been the source of advances gi ven by the credi to rs. On the contrar y, we find that i mmedi atel y before gi vi ng the advances to the assessee fi rm there i s no other balance e xcept that on account of commodi t y profi t earned, whi ch establ i shes that the source of the advances was only commodi t y profi t earned by the credi tors.
24 ITA No.1052/Chd/2010
A.Y.2007-08
22. Before the Ld.CI T( A) , we fi nd that the assessee submi tted i n the wri tten submi ssi ons fi l ed by i t reproduced at page 31 of the order, that one of the brokers, M/s Ajanta Commodi t y Servi ces, Ludhi ana confi rmed commodi t y transacti ons entered i nto by th e fol l o wi ng cred i tors, vi de thei r l etter dated 21.12.2009 fi l ed i n response to informati on sought by the A.O. u/s 133( 6) of the Act dated 17.12.2009.
1.Aja y Kumar Go yal ( HUF)
2.Sanja y Kumar Go yal ( HUF)
3.Ani l Kumar Go yal ( HUF)
4.K.K.Go yal ( HUF)
5.Nami t Modi
23. Thi s l etter was reproduced i n the submi ssi ons fi l ed. But we fi nd that the CI T( A) 's fi ndi ng at para 12 of hi s order takes no cogni za nce of the same. Vi s a vi s the ot her broker i .e. M/s Pri me Commodi ti es,78, La jpat Nagar, Ludhiana, the Ld.CI T ( A) has s tated at para 1 2 of hi s order t hat i t was e xpl ai ned that t hi s concern wa s an e xi sti ng i ncome ta x assessee wi th P AN AECPJ2591K ,operati ng from i ts stated address and had cl osed busi ness on 31.03.2009 whi ch i s evi dent from the fact that rent was pai d upto then.
24. In the l i ght of the above, we fi nd that there was i nformati on before the Ld.CI T( A) regardi ng the g enui neness of the brokers. One, he di d not take cogni zance of, whi l e the other was apparentl y i nformati on stated to hi m, which he chose to bel i eve wi thout ei ther veri f yi ng hi msel f, e xerci si ng hi s po wers whi ch are co-termi nus wi th the A.O., or getti ng them veri fi ed by the A.O. The C I T( A) 's order does not fi nd menti on of any such fact. There fore though the A.O. wi th hi s i nqui r y had c ast a shado w on the credi t worthi ness of the 25 ITA No.1052/Chd/2010 A.Y.2007-08 credi tors by r eveal i ng that t he brokers, fr om whom commodi t y profi t was stated to have been ear ned by the credi tors and whi ch was the source of the l oans/deposi ts gi ven, ei ther di d not e xi st or di d not confi rm the i mpugned transacti on, the Ld. CI T( A) hel d the same to be genui ne wi thout any cogent basi s. I deal l y the CI T( A) ought to have veri fi ed the truthful ness of the fact stated by the assessee that one of the brokers had confi rmed the earni ng of profi ts by the credi tors on commodi ty transacti ons undertaken through hi m. Th e Ld.CI T( A) al so shoul d have acted on the detai l s /i nformati on regardi ng the PAN of the other broker and that he had pai d rent for t he premi ses fro m which he was operati ng, checki ng the veraci t y of the same. Onl y on the basi s of hi s i nqui r y as aforesai d coul d he have thereafter arri ved at any c oncl usi on regardi ng the genui nen ess of the transacti on und ertaken by the credi tors wi th t he brokers and thus the credi t worthi ness of the credi tors.
25. We hol d, therefore hol d that the Ld.CI T( A) had no basi s for hol di ng that the transacti on of advances received from the aforestated parti es was genuine. But si nce the assessee, on i ts part, had suppl i ed the necessar y informati on regardi ng the brokers, i n the i nterest of justi ce we consi der i t fi t to restore the i ssue back t o the CI T( A) to veri f y and consi der the same and thereafter deci de the i ssue in accordance wi th l a w. We ma y add that the assesse e be gi ven due opportuni t y of heari ng i n thi s regard.
26 ITA No.1052/Chd/2010
A.Y.2007-08 Ground of appeal No.3 is all o wed for statisti cal purposes.
26. I n the resul t, the appeal of th e Revenue i s partl y al l o wed for stati sti cal purposes.
O r d e r p ro n o u nc e d i n t he O p e n C o u r t .
Sd/- Sd/-
संजय गग अ नपण
ू ा ग&ु ता
(SANJAY GARG ) (ANNAPURNA GUPTA)
याय क सद य/ Judicial Member लेखा सद य/ Accountant Member
*दनांक /Dated: 13th March, 2019
*रती*
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय-
ु त/ CIT
4. आयकर आयु-त (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील$य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदे शानस
ु ार/ By order,
सहायक पंजीकार/ Assistant Registrar