Income Tax Appellate Tribunal - Amritsar
K. K. Steels (India) (P.) Ltd. vs Assistant Commissioner Of Income-Tax. on 13 October, 1998
ORDER
Sh. G. L. Garoo, A.M.
1. The appellant has filed appeal against the order passed by the CIT(A) in A.No. 27/AC Inv.Cir.I/Asr./97-98 dated 28-1-1998 and taken following grounds in appeal :
"1. That the order of the ld. CIT(A) is unjust, arbitrary, contrary to facts, and bad in law.
2. That the confirmation of the assessment is framed under section 144 is uncalled for, and deserves to be quashed.
3. That without prejudice to the foregoing grounds, the confirmations as made on diverse counts, are bad on facts as also in the eye of law.
4. That the confirmations of Rs. 34,92,290 on account of alleged unexplained cash credits is totally against facts on record particularly the audited statements furnished with the return to confirm that an amounts were received by account payee cheques. The permanent account number of all the creditors otherwise available with the Assessing Officer were once again furnished before CIT(A).
5. That disallowance of interest of Rs. 3,68,644 has been erroneously confirmed in view of the facts of the case, particularly in view of ground (4) above. Proof regarding payment of TDS on interest paid alongwith Balance sheet of all creditors as orally desired during the proceedings were placed on records.
6. That confirmation of disallowances made on account of donations, postage and telephone expenses, car petrol and maintenance and travelling expenses was uncalled for.
7. That treatment of agricultural income of Rs. 11,94,993 as income from undisclosed sources was totally uncalled for both in facts as also in law, since the order of the Hon'ble ITAT in ITA No. was placed before the CIT(A).
8. That in confirming the alleged best judgment assessment, the ld. CIT(A) did not consider the fact that the Assessing Officer had without consideration of intrinsic and Extrinsic evidence confirmed the finding of the Assessing Officer, which are punitive."
2. The Ld. D.R. relied on the order passed by the CIT (A) and the Assessing Officer.
3. Ground Nos. 1 & 2 are against the action of the Assessing Officer to frame the assessment under section 144 of the Income-tax Act and action of the CIT(A) to confirm the order passed under section 144. The Assessing Officer has mentioned in the assessment order that notice under section 143(2) was issued on 9-11-1995 fixing the case for 16-11-1995. The appellant moved an adjournment application and the case was adjourned for 17-11-1995. On 17-11-1995, another adjournment application was received. The case was adjourned for 4th December, 1995 and the appellant was asked to file various information as mentioned by the Assessing Officer at pages 2 and 3 of the assessment order. Another notice was issued under section 142(1) on 12-12-1995 fixing the case for 20-12-1995. The appellant again moved an adjournment application and pleaded that he was unable to furnish the required information because they were busy in appellate work. On 21-12-1995, notice under section 131 was issued to the Directors to produce the books of account relating to the assessment years 1993-94 and 1994-95. The appellant again sought further adjournment which was for 15 days. Meanwhile, the case was transferred from Pathankot circle to the Central Circle, Amritsar and fresh notice under section 142(1) was issued and case was fixed for 24-7-1996. Again adjournment was received from the appellant, adjourning the case for 26-8-1996. The Counsel of the appellant appeared on 27-8-1996 and filed written reply dated 22-8-1996. The appellant pleaded before the Assessing Officer that the case is a fall-out of part disallowance of the first appeal by the ld. CIT(A), Amritsar and the findings have been challenged before the Income-tax Appellate Tribunal in respect of assessment year 1992-93 and the appellant pleaded, before the Assessing Officer that the issue before the ITAT for 1992-93 is also common and applicable on the issue of agricultural income shown for the current assessment year. The ld. counsel pleaded that the proceedings may be deferred. These facts are mentioned in para-8 of the order of the ITO. The ITO adjourned the case to 9-9-1996 but the same remained uncomplied with and no one attended on 9-9-1996. The Assessing Officer issued another notice fixing case for 20-12-1996 and on that date the appellant filed written reply dated 20-12-1996. Another notice was issued to the assessee fixing the case for 21-1-1997. On 21-1-1997, Sh. Ajay Gaind appeared and produced the books of account relating to assessment year 1995-96. The Assessing Officer asked for various queries as per entries in the order-sheet and the case was finally fixed for 4-2-1997. Since no one appeared on that day, the Assessing Officer completed order under section 144. Against this action of the Assessing Officer, the appellant filed appeal, before the ld. CIT(A). The ld. CIT(A) gave following finding in his order :-
"12. I have considered the above facts and contentions. In this case, it is obvious that the appellant has decided at the outset not to comply with the statutory notices. Right from the date of first hearing i.e., 16-11-1995 till the last date of hearing i.e. 4-2-1997, the conduct of the appellant can be summarised as under :-
(I) Total non-compliance with various statutory notices issued from time to time.
(II) Total absence of any explanation for non-compliance although adequate opportunity has been given by the Assessing Officer.
(III) Seeking of adjournment on flimsy reasons without any reason at all every time, although the date of hearing has been fixed by the Assessing Officer as per the request of the appellant on the previous occasions.
(IV) Non-compliance with notices under section 143(2) on various occasions as there was no personal attendance on many dates without any reasonable cause.
(V) Total disregard for provisions of the IT Act and total non-co-operation in the assessment proceedings.
(VI) Thus from 16-11-1995 to 4-2-1996, the case was fixed for hearing on 12 occasions i.e. on 16-11-1995, 4-12-1995, 20-12-1995, 27-12-1995, 4-1-1996, 1-2-1996, 24-7-1996, 26-8-1996, 9-9-1996, 20-12-1996, 21-1-1997 and 4-2-1997. On these twelve occasions spread over a period of one year and three months, the appellant failed to furnish even once, its books of account and failed to furnish other evidence/information called for.
(VII) It is the peculiar hall of this case that during the entire assessment proceedings when the appellant was avoiding and disregarding its statutory obligation with the impunity, the appellant did not bother to furnish any justification or explanation for its conduct. Thus, there is no explanation let alone reasonable explanation for such continuous and blatant failures.
(VIII) Even during appellate proceedings, the appellant does not have a single word to say in defence of its conduct or to provide even a flag-leaf for its numerous failure.
13. The explanation given by the appellant during appellate proceedings is totally unsatisfactory, since :
(a) Failure to comply with the summons under section 131 is not the reason for framing the assessment under section 144.
(b) Even if the books of account for the assessment year 1995-96 had been furnished as required, where is the explanation for not furnishing the books of account for assessment year 1994-95 which had been called for as early as November, 1995.
(c) Where an Assessing Officer has an access to any information in his office, it does not absolve an assessee from the responsibility of furnishing the information and evidence called for. In this case, the Assessing Officer did not have any meaning to verify the correctness of the figures in respect of the loans alleged to have been received from the share-holders/directors even by a reference to their representatives.
(a) Omission to consider a telegram sent by the counsel of the appellant to the Assessing Officer on 4-2-1997, does not effect the position that the appellant had failed to comply with various statutory notices.
14. In view of the above, it is clear that the appellant has no explanation or justification to offer for its failure on various occasions to comply with the statutory notices. As already stated, the failure in this case is deliberate, premeditated and blatant. The surprising part is that both the Assessing Officers displayed such patience when confronted with such non-co-operation. Under these circumstances, the decision of the Assessing Officer to complete the assessment ex parts under section 144 was fully justified and is confirmed. In fact, in this case, the Assessing Officer was duty bound to complete the assessment under section 144. If in such case of blatant disregard of law resort is not made to the provisions of section 144, it would only seek to encourage other assessee at large to act in a similar manner and tax administration would simply collapse. As already held above, the action of the Assessing Officer in passing the order under section 144 is upheld."
4. The ld. Counsel of the appellant has vehemently pleaded that the reasons for non-co-operation was verbal request to the Assessing Officer to wait for the decision and judgment of ITAT regarding agricultural income. The ld. counsel pleaded that there was on going litigation regarding the genuineness of the agricultural income along with the reasonableness of the agricultural income. The second point taken by the ld. counsel in his arguments relates to the fact that the assessment proceedings were taken continuously for two assessment years.
He has submitted that they produced books of account and all the documents for both the years but the Assessing Officer only took note of the books of account for the assessment year 1995-96. Th ld. Counsel pleaded that this fact is mentioned at page 7 of the assessment order. The ld. Counsel pleaded that action under section 144 is arbitrary and should be set aside.
We have gone through the records and we are of the opinion that the decision given by the ld. CIT(A) on this issue deserve to be sustained. There is ample evidence on record regarding non-compliance of various notices issued to the appellant by the Assessing Officer. There may be reason available with the appellant but the reason is not sufficient enough which will make us to disturb the finding given by the ld. CIT(A) on this issue. The matter is settled by the Hon'ble Supreme Court in the case of CIT V. Segu Buchiah Setty [1970] 77 ITR 539, whereby the Hon'ble Supreme Court has observed that section 144 can be invoked if the appellant commits any of the default mentioned in the section itself.
We, therefore, upheld the finding of the ld. CIT(A) on this issue.
5. Remaining grounds of appeal deals with the assessment of income made by the Assessing Officer and confirmed by the CIT(A).
6. The ld. DR replied on the order passed by the authorities below.
7. The ld. Counsel filed fresh evidence which according to him is essential for adjudication and the correct determination of taxable income of the appellant. The ld. counsel has filed the same evidence before the ld. CIT(A). This matter is discussed by the ld. CIT(A) in para 12 of his order which is reproduced above. The additional evidence which was not allowed by the ld. CIT(A) are some affidavits. The ld. counsel has further discussed, various Hon'ble Supreme Court's decision. We are of the opinion that some of the evidence is required to be filed because without marshalling that evidence there will be total miscarriage of justice. We have taken on record the evidence which is ready available with the Assessing Officer and the evidence is pertaining to the file of the appellant and income-tax file of the Directors and share-holders being assessed by the same officer.
The evidence is basically tax record of those persons alongwith the assessment orders. The balance of evidence like details expenditure which were not filed before the Assessing Officer are not admitted and taken on record.
8. The very important issue that has come up in this case is to interpret the section 144 as interpreted by the Hon'ble Supreme Court. The section 144 is not a penalty provision. The assessment under section 144 is a best judgment assessment which is to be realistic, reasonable and judicious. The Assessing Officer has to take overall review of the material available and factual situation in front of the Assessing Officer and then take a reasonable, logical and rationale stand. The ld. CIT(A) has relied on the decision of the Hon'ble Supreme Court in the case of CST v. H. M. Esufali, H. M. Abdulali [1973] 90 ITR 271 and this observations are as under :-
"33. It needs to be mentioned here that the assessment in this case has been completed under section 144. The Supreme Court of India have held in the case of CST v. H. M. Esufali, H. M. Abdulali [1973] 90 ITR 276 that an assessment made by the Assessing Authority to his best judgment should not be disturbed if the basis adopted is held to be relevant. In the present case, the basis for various additions is simply the fact that the appellant has failed to discharge the onus placed upon it. This basis is sound and relevant. Accordingly, in view of the position as laid down by the Highest Court of the land, the assessment made by the Assessing Authority should be disturbed. The relevant extracts from this judgment are reproduced below :-
"He could only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him is not arbitrary and his nexus with facts discovered, the name cannot be questioned. In the very nature of things the estimate made may be an over-estimate or an uncler-estimate. But that is no ground for interfering with his 'Best Judgment'. It is true that the basis adopted by the officer would be relevant to the estimate made. The High Court was wrong in assessing that the assessing authority must have material before it to prove the turnover suppressed. If that is true, there is no question of 'best judgment' assessment. The assessee cannot be permitted to take advantage of his own illegal acts. It was his duty to place all facts truthfully before the assessing authority if he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove conclusively that turnover he had suppressed. That fact must be within his personal advantage. Hence, the burden of proving that fact is on him.
If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else. The High Court could not substitute its 'best judgment' for that of the assessing authority. In the case of 'best judgment' assessments, the Courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis even though the Courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. In the present case, there is no dispute that the assessee's accounts were rightly disturbed."
9. The Hon'ble Supreme Court was dealing with the sales tax assessment order which was passed by an ex-parte order. The legal discussion has developed on a situation where the Hon'ble Supreme Court was dealing with the concealment of sale and entries in the seized bill book which were not reflected for the purpose of Sales Tax. In the same judgment as quoted by the ld. CIT(A), Hon'ble Supreme Court has observed that the Assessing Authority while making 'best judgment', no doubt, should arrive at its conclusion without any bias and on rational basis. The Hon'ble Supreme Court further observed in the same judgment that the Authority should not be vindictive or capricious. While making an estimate, under no circumstances the income which is not taxable should not be made as income of the appellant. How estimate is to be made, lot of discussion has taken place in large number of judgments. We restrict ourselves only to the judgment given on the issue by the Hon'ble Supreme Court. The Hon'ble Supreme Court has defined the 'best judgment' assessment in the case of State of Kerala v. C. Velukutty 60 ITR 239. The Hon'ble Supreme Court has given following observations :-
"Under section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but an settled and invariable principles of justice. Though there is an element of guess-work in a 'best judgment assessment' it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though sub-section (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material."
10. In another land-mark decision the Hon'ble Supreme Court has decided in case of State of Orissa v. Maharaja Shri B. P. Singh Deo [1970] 76 ITR 690. Justice Hegde has observed that 'the power to levy assessment on the basis of best judgment is not a arbitrary power and assessment must be based on some relevant material and power cannot be exercised under sweet will and pleasure of the concerned authority. The Hon'ble Supreme Court has further clarified the best judgment assessment, in Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524. The Hon'ble Supreme Court has observed that authorities who are passing best judgment orders must make an honest and fair estimate of the income of the assessee, though some amount of arbitrariness cannot be avoided in such estimate but the estimate under no circumstances should be capricious. There should be a reasonable relation to the available material and facts and circumstances of the case with the assessment of such material for arriving at taxable income. The Privy Council has also given similar opinion in CIT v. Laxminarain Badridas [1937] 5 ITR 170. The Hon'ble Supreme Court has also held in the case of S. M. Hasan v. New Gramophone House AIR 1977 SC 1788 that the Tax Officer, who makes a best judgment assessment, should make an intelligent well-grounded estimate rather than launch upon pure surmises.
11. We are of the opinion that while passing the best judgment order, the Assessing Officer has to take a note of the totality of the case of all the relevant material available in the assessment record of earlier years or subsequent years. He should also keep note of the records and information available with him in the files which are closely connected with the assessment of the appellant. The assessment of income has to be fair and reasonable and should not violate principles of natural justice. Even if some evidence is to be taken note of, it is that duty of the C.I.T. (A) to take note of that evidence because the appellate authority has to review the order of subordinate authority, in a way so that the aggrieved person will get justice and all the relevant information must be taken note of which is relevant to deliver such judgment. The duty of Tax Authority to make fair taxable assessment of the income.
12. In the case of the appellant, book version of accounts have totally been accepted. Section 145 has not been applied in the case of the appellant. The additions have been made on three accounts. The first account relates to addition on account of cash credit, the second account of addition is opened by making part disallowances of various expenses debited to profit and loss account and the third addition is made on account of adopting Agricultural Income as income from other sources. On all the accounts by and large Assessing Officer has evidence, available with him either in the file of the appellant or in the file of the Directors and Shareholders who are being assessed by the same Assessing Officer Whatsover has been added in the cash credit is accepted as genuine by the Assessing Officer in their individual, cases.
13. The Assessing Officer has made addition on account of cash credit in the name of Directors and Shareholding under section 68 amounting to Rs. 34,92,290. He has also disallowed interest paid on these credits amounting to Rs. 3,68,644.
14. While making the disallowance out of cash credits the Income-tax Officer has made following observations :-
"14. As stated above, the assessee was requested to explain the genuiness of the loans introduced in the name of the Directors and shareholders. The assessee-company was requested to produce the evidence to prove the genuineness of the cash credits and also furnish information to prove the genuineness of the cash credits and also furnish information regarding the Directors and Shareholders assessed to tax. It was also requested that details of TDS deducted and deposited may be filed and also was requested to file the evidence of filing of the statements of the TDS and the circles where it has been filed. The assessee-company was also requested to file complete copies of accounts of the directors, their respective addresses, household withdrawals, the details of family strength, the assessee-company was also requested to produce the books of account relating to agricultural income shown at Rs. 11,94,993. The assessee was also requested to file complete details of income and expenditure of the agricultural income and also to show as to how the net income of Rs. 11,94,993 was shown. The assessee was also requested to file complete details of purchases and sales above Rs. 50,000. The assessee was also requested to file complete details of agro division and also to produce the bank statements, bills and vouchers relating to expenditure and income. No information has been filed. Schedule of loans from Directors as on 31-3-1994 shows that the assessee had obtained loans from Sh. Krishan Lal, Managing Director which as on 31-3-1994 was Rs. 19,152. The balance as on 31-3-93 however was only Rs. 1,88,228 and in the statement filed alongwith the balance sheet the auditor has stated that the maximum amount outstanding at any time during the year in Annexure B in respect of Sh. Krishan Lal was to the tune of Rs. 784728 which reveals that loan from Sh. Krishan Lal, M.D. has been taken at Rs. 5,96,500 during the accounting period relevant to asstt. year 1996-97. The assessee has not produced any evidence whatsoever to prove the genuineness of these loans. Therefore, it has to be assessed under section 68 of the Income-tax Act, 1961 being income of the assessee-company introduced in the garb of the cash credit obtained from Sh. Krishan Lal which has not been proved satisfactorily. Similarly, Sh. Praveen Kumar, Director's loan account showed that balance as on 31-3-1994 was Rs. 28,15,942. Balance as on 31-3-1993 was Rs. 10,0019,081 which means that an amount of Rs. 18,15,861 was introduced in the name of Sh. Praveen Kumar, Director in the books of the assessee-company. No evidence worth the name has been produced to prove the genuineness of this cash credit. In the absence of any explanation furnished, I have no alternative then to assess the cash credit under section 68 of the Income-tax Act being income of the assessee-company from undisclosed sources. In the case of Sh. Sunil Kumar, Director, the credit balance as oil 31-3-1994 was Rs. 8,55,167 and the credit balances as on 31-3-93 was Rs. 5,50,406 which means that an amount of Rs. 3,04,761 was the amount introduced by the assessee company in the name of Sh. Sunil Kumar's loan account during the year under consideration. Since no evidence has been filed, the amount introduced in the name of Sh. Sunil Kumar is treated as unexplained and as income of the assessee-company from undisclosed sources.
15. In the Schedule 'B' a sum of Rs. 10,43,428 has been shown as outstanding against Sh. Chander Prakash. As on 31-3-93, the outstanding amount was only Rs. 1,66,692 which means that an amount of Rs. 8,76,736 has been introduced as loan from Sh. Chander Parkash. Since no evidence has been filed, the entire amount introduced during the year under consideration in the name of Sh. Chander Parkash is treated as income emanated from undisclosed sources of the assessee company under section 68. Similarly, in the name of Smt. Kamla Rani the balance as on 31-3-1994 was Rs. 3,32,867 whereas balance shown as on 31-3-1993 was Rs. 27,432. This means that introduction in the name of Smt. Kamla Rani during the year was to the tune of Rs. 3,05,435. No evidence to prove genuinesess of this loan has been filed and hence, it is treated as income of the assessee-company under section 68 of the Income-tax Act 1961. There was a fresh credit in the name of Smt. Poonam Arora amounting to Rs. 20,421. No evidence whatsoever has been filed to prove the genuinesess nor even the elementary evidence where the creditor is assessed and how the amount came to be deposited in the books of the company has been furnished. Therefore, the entire amount of Rs. 20,421 introduced in the name of Smt. Poonam Arora is treated as income of the assessee-company emanted from the undisclosed sources for the asst. year 1994-95. Total addition on account of the loans shown from the Directors and the Shareholders assessed under section 68 will work out to Rs. 34,92,290 which is added."
15. Agitated against the finding of the Assessing Officer the appellant filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dealt with this issue by observing that the cash credits are accepted as genuine, if following conditions are established by the appellant :-
(i) The Genuiness of the creditors;
(ii) The credit-worthiness of the creditors;
(iii) The identity of the creditors;
He has given following finding while confirming the cash creditors "21. In the present case, the appellant has failed to discharge this onus. Even if it is accepted for the sake of argument that the identity of some of the creditors stands established as they are assessees with the same A.O., the fact remains that neither the genuineness of these credits nor the creditworthiness of the creditors has been established. The appellant had more than one year in which to furnish the necessary confirmation or copies of accounts with evidence before the Assessing Officer. The appellant, however, failed to do so. Moreoever, the appellant has failed either during proceedings or during appellate proceedings to furnish any explanation or justification for its failure. Under these circumstances, it is clear that the Assessing Officer was left with no choice whatsoever. The appellant having failed to discharge the onus placed upon it (131 ITR 688; 208 ITR 465; 198 ITR 147; 187 ITR 596). The Assessing Officer was justified in adding the amount of Rs. 34,92,290 to the income of the appellant as unexplained credits under section 28 of the Income tax Act, 1961.
The addition is, therefore, confirmed."
16. The ld. Counsel of the appellant has pleaded that all the creditors were assessed by the same Office or by the Officer Who were assigned the jurisdiction in the same office of Pathankot. The ld. Counsel of the appellant pleaded that in case of the Directors and Creditors, not only the returned income was accepted but even the interest income was accepted and taxed by the Assessing Officer. The ld. Counsel pleaded that name of the Directors and Shareholders were available with the Assessing Officer. The ld. Counsel pleaded that the level of investigation in Central Circle is expected to be of high standard as compared to other circles. The ld. Counsel pleaded that under no circumstances it can be presumed that the Assessing Officer was not aware of the fact that the Directors and share-holders who are appearing as cash creditors were being assessed by the same Assessing Officer. The ld. Counsel has pleaded that no action whatsoever has been taken in their individual case even till this date. The ld. Counsel has further pleaded that the Directors and shareholders are to appear as cash creditors or existing income-tax assessees for more than a decade and in case of Sh. Krishan Lal, he is a existing income-tax assessee for more than three decades.
17. The ld. Dr. could not answer any of the enquiry and the discussion but simply relied on the order passed by the authorities below.
18. We have already given finding that even in the ex bare order it is the duty of the A.O. to look into all relevant records. The assessment order has to give complete natural justice to the assessee. The A.O. has observed that the appellant was requested to file the details of T.D.S. and also file evidence of filing statement of the T.D.S. and Circle where it has been filed. While framing the assessment of the Directors and shareholders, the Assessing Officer has given benefit of T.D.S. logically and correctly T.D.S. was deducted and no action for violation of TDS has been initiated against the appellant-company. It is worthwhile to note the factual position of each and every creditor. The first credit is in the name of Sh. Praveen Kumar. Sh. Praveen Kumar is a Director of the Company. For the asstt year 1994-95, ITO Pathankot has passed order assessing the income of Sh. Praveen Kumar at Rs. 1,62,070. Alongwith his returns of income Sh. Praveen Kumar has filed computation of taxable income which includes interest received from M/s. K. K. Steels. Sh. Parveen Kumar has also given details of TDS deducted by the company. Alongwith the return Sh. Parveen Kumar has given copy of the personal account and the balance sheet which shows his investment with M/s. K. K. Steels Pvt. Ltd. at Rs. 28,15,942. At the same station, the Assessing Officer has accepted the return of income and the loan advanced to the company. This information was available with the Assessing Officer. This fulfils the criteria of genuineness of the credits because the identification 'is established beyond doubt. The appellant has produced balance sheet in his personal account which has been accepted by the Assessing Officer. The appellant-company being a Private Ltd. Company, the investments are made by the Directors and therefore the genuineness and identification is not under doubt because entire amount has come through bank transaction. The second credit is in the name of Sh. Krishan Lal, who was having loan account already with the appellant-company. The Assessing Officer has completed assessment of Sh. Krishan Lal at an income of Rs. 1,79,920 which includes salary from the company as well as interest received from the company. He has also given effect to the TDS deducted on salary and interest by the appellant company. Alongwith his return, Sh. Krishan Lal has filed statement of income, personal account and balance sheet. In the balance-sheet, the appellant has shown advance to M/s. S. K. Steels. Sh. Krishan Lal is income-tax assessee in the same Ward and in the same place for more than three decades, and all the material is available with the same Assessing Officer who has assessed the company alongwith Directors.
19. The third credit is in the name of Sh. Sunil Kumar. The Assessing Officer has assessed income for 1994-95 at Rs. 1,56,519. Sh. Sunil Kumar received salary from the appellant-company as well as interest on the loan deposits made with the appellant-company. Apart from that Sh. Sunil Kumar has shown Agricultural income of Rs. 30,000. The Assessing Officer has given benefit of T.D.S. deduction by the appellant, While framing the assessment of Sh. Sunil Kumar. Alongwith his return of income Sh. Sunil Kumar has given complete details of account including the balance sheet, where the loan advanced to the appellant-company is appearing in the books of account. In the books of account of Sh. Sunil Kumar, the entire documents have been filed in the individual cases and accepted by the Assessing Officer.
20. The Income-tax Officer has assessed the income of Smt. Kamla Rani at an income of Rs. 23,170 for the assessment year 1994-1995 and also assessed the Agricultural Income of Smt. Kamla Rani at Rs. 2,52,350. Smt. Kamla Rani is also a existing assessee for a decade and has filed complete balance sheet, statement of income alongwith her return. In her balance sheet she has shown loan deposit account with M/s. K. K. Steels Enterprises. These documents and assessment records are available with the Assessing Officer.
21. There is deposit in the name of Smt. Poonam Arora to the tune of Rs. 20,421. Smt. Poonam Arora has also filed her return of income and balance sheet. The Income-tax Officer Ward-17 (5) New Delhi, has completed assessment of Smt. Poonam Arora at an income of Rs. 49,797. Alongwith her assessment record, she also filed balance, affidavit etc. Since the information was not available with the Assessing Officer because she was being assessed by Income-tax Officer at Delhi, she filed return for the assessment year 1994-1995. We are of the opinion that this credit could not have been accepted by the Assessing Officer while passing an ex parte order.
22. So far as the credit of Sh. Chander Parkash particularly credit introduced for the first, is concerned, there is opening balance amounting to Rs. 1,66,692. The appellant has received two cheques of Rs. 4 lakh each on 22-7-1993 & 23-7-1993. Sh. Chander Parkash is assessed to Income-tax with Income-tax Officer, Muzaffarnagar and his assessment for Assessment year 1994-1995 in the status of HUF is completed by the Income-tax Officer, Muzaffarnagar at an income of Rs. 35,300. There is a history of this creditor in the books of account of the appellant. The appellant obtained loan or Rs. 6,49,747 in the assessment year 1992-93 from Sh. Chander Parkash. The Assessing Officer made addition disbelieving the creditworthiness of Sh. Chander Parkash. The matter was adjudicated upon by the ld. CIT(A). The ld. counsel of the appellant informed us that the credit was accepted in appeal. The ld. CIT(A) has made following observations :-
"2. The ld. counsel apprised that so far cash credits are concerned, the addition under section 68 of the Act has been made in respect of two loans. The first loan was that of Sh. Chander Parkash relating to Rs. 6 lacs. Out of this amount, the addition has been made only on the ground that the payment to this extent was made to a sister concern. In fact, the appellant-company had filed a copy of A/c with the Income-tax Department giving all the details of the loan which proves not only the identity of the depositor but also the source of investment also. The ld. ACIT had also got these facts confirmed from the bankers of the depositors. There was, thus, no justification to make the impugned addition merely because Rs. One lacs has originally come from sister concern. The ld. counsel went to say as per the written arguments that, 'it was not right on the part of the ld. ACIT to hold that a part of this loan represented the money belonging to the company. In fact, the assessee-company had fully explained the nature and sources of the amount credited in its books and there was nothing on records to establish that the explanation offered was not satisfactory. On the other hand, the identity of the depositor was fully established, the depositor was an Income-tax assessee and he had confirmed having advanced the loan amount to the company. The company had provided interest on this loan and had also deducted the tax at source, the assessee-company had gone to the extent of furnishing the bank statement of the depositor and these statements were also verified by the ld. ACIT on independent enquiry. In view of this, the assessee-company had fully discharged the onus of proving with regard to the cash credit appearing in its books of account.' The ld. Counsel has filed all the necessary documents before us to accept the genuineness of the credit. More so, the same issue about the identification creditworthiness and genuineness of the creditor Sh. Chander Parkash is already accepted in the the Assessment year 1992-1993. The issue of identification, creditworthiness and genuineness of the transaction is clear from the record of the appellant firm in the Assessment year 1992-1993. The finding given by the CIT(A) reproduced above is part of the record available with Assessing Officer. On top of it, he is already assessed to tax and has discharged the relevant facts in his return. We cannot confirm this addition simply because an ex parte order has been passed. The confirmation of this credit will tentamount to imposing of penalty on the appellant. We are, therefore, of the opinion that the identity of the creditor stands already established. The creditor is assessed to Income-tax. The Assessing Officer can send the intimation to the concerned ITO and it is for the concerned ITO to take necessary action regarding the credit.
23. It is also important to note that all the persons mentioned are having Permanent Account No. as follows :-
"Name P. A. No. Station Sh. Krishan Lal 27-003-PX-1057 Pathankot Sh. Parveen Kumar 29-002-PV-0655 Pathankot Sh. Sunil Kumar 27-003-PA-1340 Pathankot Sh. Chander Parkash GIR No. C-37 Ward-* Mazaffarnagar Smt. Kamla Rani 27-003-PZ-0978 Pathankot".
The appellant made a request to the ld. CIT(A) and made this information available to the CIT(A). We are of the opinion that the ld. CIT(A) should have taken note of the letter addressed to him on 29-9-1997.
24. Keeping in view, we are of the opinion that there is no justification in making addition of cash credit and interest on the cash credit which is already accepted in their individual cases as genuine advance and which is supported from books of account, of each cash creditor and they have already paid tax on the interest earned on these creditors and the entire information was available with the AO in the record of the assessee as wells in the record of the Directors and Shareholders.
25. The second addition made by the AO relates to the disallowances out of expenses debited to profit and loss A/c. The AO has discussed this situation in para 16 of the order. The AO has observed that the appellant did not produce bills, vouchers etc. The ld. counsel filed photocopy of the details of expenses which we have not taken note because it was his duty to produce these details of expenses before the A.O. The ld. CIT(A) has upheld the entire disallowances made by the A.O. It is very important at this stage to make a note of the past history of the appellant, regarding disallowances made out of profit and loss account. For the A.Y. 1991-92 out of Directors traveling no addition was made. However, for the A.Y. 1992-93 all additions made were deleted by the CIT(A) and his order is confirmed by the I.T.A.T. For the A.Y. 1993-94, no addition is made out of car and petrol expenses. No addition has been made in earlier years for charity and donation. Out of travelling no addition has been made in earlier assessment year. Out of Postage and Telephone, only addition of Rs. 10,000 is made in the A.Y. 1993-94.
26. In view of the above history the disallowances made by the AO are analysed. Out of Postage and Telephone, the appellant has debited Rs. 3,10,912. The AO is disallowing 2096 of the expenses for personal use of the Directors. We are of the opinion that reasonable estimate is called for. However, 20% of estimate is excessive. The disallowance of 10% will be reasonable for the personal use of the Directors.
27. The A.O. has disallowed 1/4th expenses for personal use of Car by the Directors of the Company. The total expenses are claimed at Rs. 82,411. The personal use of Directors cannot be ruled out. However, keeping in view the total extent of business, we are of the opinion that 1/6th will be reasonable on the facts and circumstances of the case. The A.O. has made a disallowance of Rs. 6,000 out of travelling expenses. The travelling expenses claimed at Rs. 42,517. The details have not been filed before the AO. No disallowance is made in earlier years. We are of the opinion that disallowance of Rs. 4,000 will be reasonable. The AO has made an addition out of donation and charity amounting to Rs. 29,101. Since no proof of exemption is filed before the A.O., we are of the opinion that he was justified in making addition on account of charity and donation.
28. The A.O. has also disallowed interest amounting to Rs. 3,68,644 by invoking provision of section 40A(2)(b). In the order the ITO, has not discussed even the rate of interest the order is absolutely non-speaking on this issue. However interest has been paid on the deposit account at the rate which was being paid in earlier years. No such disallowance was, made in earlier assessment years where interest has been paid to the Directors and Depositors. We therefore, find no justification whatsoever in making this disallowance. The A.O. will modify his order accordingly.
29. The third addition is made on account of Agricultural Income. The A.O. has reproduced the entire stand taken by the appellant and A.O. in earlier years regarding Agricultural income. The wording and situation of the order of A.O. is the same as was taken by the A.O. for the assessment years 1992-93. The ld. CIT(A) has confirmed the order of the A.O. at para 22 by mentioning that it is the onus on the assessee to establish that the income is agricultural income. In fact the appellant took on lease the Agricultural Land and showed agricultural income right from the assessment years 1991-92 to 1995-96 when the lease was over. The Land is the same, the owners of the land are same and facts and circumstances and situation is at par. For the A.Y. 1991-92, the appellant returned Agricultural Income at Rs. 1,79,500. In the re-assessment order, the same was taken at Rs. 1,29,500. The appellant surrendered Rs. 50,000 out of agricultural income to be taken as income from other sources. For the assessment year 1992-93, the agricultural income was returned at Rs. 14,06,575. The matter went up to the ITAT and the ITAT referred back the matter to the file of the A.O. and in the reassessment proceedings, the A.O. estimated agricultural income at Rs. 8,00,000 and assessee surrendered Rs. 6,06,575 as income from other sources. For the A.Y. 1993-94, the appellant reflected agricultural income at Rs. 16,14,378. The A.O. estimated the agricultural income at Rs. 8,00,000 and the appellant surrendered Rs. 9,14,378 out of agricultural income. These are the facts available in the record of the Appellant. During the year under consideration, the appellant has shown agricultural income at Rs. 11,94,993. The A.O. is an ex parte order has treated the entire income as income from other sources. The fact of Agricultural activity and lease of the agricultural land is totally and thoroughly investigated. The matter had come before the ITAT and after the matter was remanded back by the ITAT for the A.Y. 1992-93, the A.O. Central Circle thoroughly investigated the matter and came to the conclusion that the appellant-company was doing agricultural operation and earned agricultural income. The dispute was that only about how much agricultural income could be earned from the land under agricultural operation. In the ex parte assessment, the A.O. should have made a reasonable estimate of agricultural income based on the past history of the case. We, therefore, make the past history of the appellant as a base for arriving at a reasonable estimate. For the A.Y. 1992-93 and 1993-94, the A.O., is of the opinion that the land area can given agricultural income of Rs. 8,00,000 we are of the opinion that for the year under consideration the same yard-stick should be adopted and we take Rs. 8,00,000 as agricultural income as admitted by the ITO, in the immediate proceeding year and adopted by the A.O. after long drawn investigation. We, therefore, treat an amount of Rs. 3,94,993 as income from other sources out of Agricultural Income shown by the appellant.
30. In the result the appeal of the appellant is partly allowed.