9911796707
TMI Blog1997 (3) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... inflation in stocks restored to the AO for adjudication afresh. Both the parties are aggrieved and, therefore, are in appeal before us. 3. The first issue raised by the assessee in its appeal is with regard to addition of Rs. 2,56,905 on account of outstanding liabilities in the names of three parties for purchasing coal, namely, (i) Sharda Coal Company, (ii) Ma Durga Coal Company and (iii) Varun Coal Company, all of Varanasi with amounts at Rs. 2,12,214; Rs. 22,065 and Rs. 22,626 respectively or Rs. 2,56,905. The AO added these amounts as the assessee was not found in possession of any evidence in the form of confirmation by these parties. He also noted that the claim of the assessee that these accounts were settled subsequently by sale of coal dust to these parties, was unsubstantiated and was an afterthought. He added these amounts to assessee's income. The learned CIT(A) confirmed the addition primarily on the ground that the assessee had surrendered the amount. 3.1 Shri O.P. Sapra, the learned Authorised Representative for the appellant submitted that the surrender of the above amount in terms of letter, dt. 22nd March, 1991, was conditional to buy peace and to avoid litigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been surrendered by assessee itself and also sale of coal-dust in the subsequent years appears to have been shown on higher rates than even the rates of coal. In reply, Shri Sapra submitted that the sale of coal-dust was at the then prevailing market rate and inclusive of freight payable which was quite substantial. 3.4 The learned representatives are heard and relevant record seen. In our considered view the addition of Rs. 2,56,905 was not called for. It is nobody's case that coal is not required by the appellant in its business. The purchases involved also stand recorded in day purchase book maintained in the normal course of assessee's business recording purchase of various raw material. The consumption of coal vis-a-vis finished goods production is admittedly better as compared to the immediately preceding assessment year which stands accepted by the Revenue.Saleof coal-dust by which these accounts were squared up also stands recorded by the appellant in its books of accounts subsequently, which stand accepted by the Revenue. Therefore, the mere fact that the assessee had surrendered the amount could not be held out against the assessee when such surrender was not accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g services rendered by these three parties and while rest of the claim was allowed, the same as relating to these three parties was rightly disallowed. He submitted that no evidence is placed on record with regard to names of the parties to whom sales stood made on which the three parties became entitled to the commission. 5.2 Having heard the learned representative of both the parties, we do not find any merit in the submission made by Shri Sapra and, therefore, agreeing with the learned Sr. Departmental Representative, we confirm the disallowance. 6. The next grievance is against additions sustained by the learned CIT(A) on account of suppressed sales, bogus liabilities and addition under s. 68 of the IT Act. In turn, the Revenue is in appeal against relief allowed by the learned CIT(A) as under: . Addition made by AO Sustained by CIT(A) Relief allowed by CIT(A) against which Revenue is in appeal . Rs Rs Rs (a) Suppressed sales 1,73,525 77,567 95,958 (b) Bogus liabilities 3,30,459 3,20,909 9,550 (c) Addition under s. 68 for unexplained cash credits 39,20,896 22,01,701 17,19,195 The AO made the above additions discussing accounts of various parties as in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder these circumstances he submitted having failed to respond to assessee's request no adverse inference could be drawn against the assessee as held by Allahabad High Court in (1962) 46 ITR 561 (sic) and E.M.C. (Works) (P) Ltd. vs. ITO (1963) 49 ITR 650 (All). He further submitted that this party already had an account with the assessee with an opening balance of Rs. 10,000 as on21st Oct., 1987. Under these circumstances he submitted the AO was not justified in making addition of Rs. 20,217 as suppression of sale and Rs. 7,629 being further credit liability as non-genuine. The learned Departmental Representative supported the view taken by the learned CIT(A). Having heard the learned representatives of the parties, as also after going through the relevant record, we are of the view that the addition made is not justified. Bill No. 86, dt.7th March, 1988, for Rs. 18,462 is against 'C' form and is duly recorded in the books of the assessee. The AO had obtained copy of account of the appellant from Laxmi Glass behind the back of the assessee and assessee's request for summoning this party under s. 131 was not acted upon by the AO. As per copy of account of this party at p. 23, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Heard and relevant record seen. We are inclined to accept the submission made by the assessee when we do not find any evidence of any sale made by the assessee to Hissar party as not recorded by the assessee in its books of account. The Hissar party was not confronted by the AO even when a specific request was made. Therefore, we delete addition of Rs. 20,640. Om Glass Store, Lucknow Rs. 22,000: 6.7 This was added by the AO there being no evidence in support of the amount received from this party as advance received and carried forward. The learned CIT(A) confirmed. No material exists on record neither any such material is placed before us compelling us to interfere with the finding of the learned CIT(A). The addition of Rs. 22,000 is, thus, confirmed. Madan & Co.: 6.8 While the assessee's books showed credit balance of Rs. 5,473 in its books of accounts in the name of this party, the corresponding balance was reflected at Rs. 849.60 by Madan & Co. The AO added Rs. 5,473 and this was confirmed by the CIT(A). Shri Sapra pointed out that on the one hand the commission payable to this party has been allowed by the AO himself, question of liability of Rs. 5,473 being non-genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on31st March, 1989, as against balance carried forward by the assessee at Rs. 10,000. The AO also examined that sale through bill No. 19, dt.29th Nov., 1987, for Rs. 18,886 had not been recorded in the books of the assessee. He did not accept the explanation that sale vide bill No. 19 was of Rs. 10,123.60 paise on 28th Nov., 1987, which was duly debited in the account of Meerut party. The AO also did not accede to the request of the assessee made on9th March, 1992, that the party be summoned. He has added Rs. 10,123 received by the assessee on5th Dec., 1987, in cash since the assessee failed to prove the genuineness thereof and has further added an amount of Rs. 8,763 being the difference between the sale of Rs. 18,886 shown byMeerutparty vide bill No. 19, dt.29th Nov., 1987, and sale of Rs. 10,123.60 shown by the assessee. It is the contention of the learned Authorised Representative that bill No. 19, dt.28th Nov., 1987, for Rs. 10,123 is duly accounted for and the AO himself having accepted the sale of Rs. 10,123 was not justified in making addition of this amount as part of addition of Rs. 18,886 representing realisation of sale proceeds of goods supplied vide bill No. 19, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andhar: 6.13 On obtaining copy of assessee's account in the books of Jullandhar party, the AO found nil balance, whereas assessee's account disclosed credit balance of Rs. 25,469. This was added by the AO. On appeal the learned CIT(A) upheld the addition of Rs. 25,000 only when he noted that advance of Rs. 25,000 received on2nd June, 1988, was not satisfactorily explained. The learned Authorised Representative invited our attention to p. 22 of the paper-book and submitted that the AO had nowhere observed that the amounts in this account by the assessee, which were all by drafts/cheques, except an amount of Rs. 5,613 in cash on 5th Dec., 1987, had not been actually remitted by the Jallandhar party or any of them did not find place in assessee's account as obtained from Jallandhar party. He submitted that to doubt the genuineness of Rs. 25,000, which was also received by demand draft was not justified when there have been a large number of transactions between the assessee and Jallandhar party and the copy of account has been obtained behind the back of the assessee. It was, therefore, urged that the conclusion drawn against the assessee is not justified. Learned representatives ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above party against Form 'C' No. 165499 duly recorded in the sales day book and is also debited in the account of the party and this is not controverted by the Revenue. On the other hand, the learned Departmental Representative supported the order of the learned CIT(A). Both the parties are heard and relevant record seen. Since the bill No. 107 is duly accounted for by the assessee in its books, we do not find any justification for the addition made. It is deleted. Relief--Rs. 22,163. Mangal Singh & Son, Amritsar: 6.16 The AO obtained assessee's account fromAmritsarparty which revealed that amount of Rs. 23,636 credited by the assessee by draft, dt.2nd Dec., 1987, did not appear in the said account becauseAmritsarparty had recorded the purchases of goods through Bill No. 21, dt.24th Nov., 1987, for Rs. 23,636 but there was no remittance recorded by that party credited by the assessee in the account ofAmritsarparty. This was added by the AO and confirmed by the CIT(A). Shri Sapra pointed out that it was through bill No. 31 and not bill No. 21, dt. 24th Nov., 1987, that goods were supplied for Rs. 23,636 and this amount was received by demand draft No. 148513 of 2nd Dec., 1987 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self concedes that sales of Rs. 11,375 and Rs. 19,751 effected by the assessee against Nakodar party, against which that party had remitted the identical amounts vide separate drafts which are duly credited in the account of Nakodar party though Nakodar party has not accounted for these transactions in its books. He submitted that it was incorrect on the part of the Revenue to make the addition of Rs. 15,191 shown by Nakodar party as purchases from the assessee without confronting Nakodar party. He submitted that the amount of Rs. 10,000 was also received by way of draft and is recorded in the account of Nakodar party in the books of the assessee like other two drafts which have been accepted and unless Nakodar party was confronted on credence should have been given to the copy of account of the assessee in their books of accounts. Learned representatives are heard and relevant record seen. In our view, addition of Rs. 15,191 cannot be sustained in view of the facts as pointed out by the learned Authorised Representative. The mere fact that Nakodar party has shown purchases from the assessee could not be termed against the assessee without confronting Nakodar party when assessee de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of this party, as obtained, revealed that sales of Rs. 22,759 vide bill No. 93, dt.5th Feb., 1988, has not been recorded, though the payment made by that party to the assessee through two drafts of Rs. 12,000 and Rs. 10,759 or Rs. 22,759 have been duly recorded. The AO, thus, added the amount of Rs. 22,759 as suppressed sale. This was confirmed by the CIT(A). Here again the request of the assessee for summoning the party was rejected. Having heard the learned representatives as also after going through the relevant copy of account at p. 41 of the paper-book, we note that sale made through bill No. 93, dt.5th Feb., 1988, was for Rs. 12,359 against 'C' form for which payment had been received on17th Feb., 1988. The assessee received a further sum of Rs. 10,759 by way of cheque, dt.25th Feb., 1988, from the Muktsar party and the same has been carried forward. Therefore, without acceding to the request of the assessee to summon Muktsar party, the AO was not justified in adding the amount of Rs. 22,759. It is deleted. . Rs (a) Badri Chand Suraj Mal, Barsi 35,040 (b) Vikas TradingCo., Moga 25,000 (c) Naresh Crockery, Kotkapura 17,000 (d) Prince Crockery, Basti 21,000 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a demand draft for Rs. 17,000 and credited this amount in the account of this party, which has been carried forward. Refusal by Naresh Crockery to receive the registered letter could not be held out against the assessee when the sales made to this very party and amounts received thereagainst on earlier occasion stand accepted by the Revenue itself. We delete addition of Rs. 17,000. Adarsh Crockery, Allahabad: 6.24 There is a credit balance of RS. 21,999 in the account of this party in the books of the assessee as carried forward. This was added by the AO since registered letters sent to this party was received back with the remark 'incomplete address'. The assessee was informed accordingly but did not file any satisfactory explanation. The addition was confirmed by the CIT(A). The assessee is aggrieved. Learned representatives are heard and copy of account at p. 46 of the paper-book seen. While the assessee is having running account with this party on account of sales made to it and amount received, the last amount received is Rs. 22,000, dt.8th March, 1989, in the form of cash which has been carried forward. There being no explanation, no confirmation with regard to this amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 1988, against `C' form. He, therefore, confirmed the remaining amount of Rs. 1,07,760 being the amount carried forward. He further noted that the sales effected by the assessee to this party is not even doubted by the AO. Having heard the learned Authorised Representative, we do not find ourselves in agreement with the view canvassed by Shri Sapra that the remaining amount should also be treated as explained when admittedly there is no evidence in the form of confirmation even from this party and as such we confirm the view of the learned CIT(A) and dismiss assessee's ground of appeal relating to this amount. 6.31 For the same reasons as above we confirm the view of the learned CIT(A) retaining addition of Rs. 1,03,500 out of addition of Rs. 3 lakhs made by the AO in the account of A.K. Bangle, Bangalore, the facts and circumstances being the same with regard to relief allowed by the learned CIT(A) for Rs. 1,96,500 being sales through bill No. 41, dt.6th March, 1988. Godavari Kangan House: 6.32 The AO added a sum of Rs. 3,25,000 being cash receipts in this account. This was confirmed by the learned CIT(A), who though noted that assessee had made sales worth Rs. 1,96,510 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10th Feb., 1988. On appeal the learned CIT(A) restricted the addition to Rs. 1,09,000 being the amount carried forward and gave relief of Rs. 1,91,000 on account of sales made by the assessee to this party vide bill No. 37, dt.10th March, 1988, against 'C' form. On facts of the case we find ourselves in agreement with the view taken by the learned CIT(A) and endorse the same. For similar reason we endorse the view of the learned CIT(A) in giving relief of Rs. 1,93,500 out of addition of Rs. 3 lakhs made by the AO in the account of Khan Bangle Store, the fact and circumstances being the same as in the case of Dinesh Kangan House. 6.38 Similar is the position with regard to relief allowed by the CIT(A) at Rs. 1,36,800 out of addition of Rs. 1,50,000 made by the AO in the account of Reeva Bangle Store, Khanna and, therefore, we confirm the finding of the learned CIT(A). Balaji Bangle Store: 6.38A The AO added Rs. 5,71,116 as appearing in this account but in appeal the learned CIT(A) restricted the addition to Rs. 1,10,300 when he noted that the assessee had also shown sales in this account during the relevant previous year itself leaving only a balance of Rs. 1,10,300. Having h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding recorded by the learned CIT(A). Bhatia Beauty, Phagwara: 6.44 The AO had added Rs. 32,225 being the credit balance carried forward by the assessee in this account on the ground that the assessee had not furnished address of this party nor it had proved the genuineness of the amount. On appeal the CIT(A) deleted the addition after going through the account of the party at p. 69 of the paper-book, which indicated brought forward balance of Rs. 21,323 and further amounts credited on six different occasions, including by demand drafts/cheques and supplies effected, leaving a balance of Rs. 32,225 which represented amount received by demand draft and cheque. In our view, the learned CIT(A) was justified in allowing the relief and, therefore, we uphold his finding. 7. Having dealt with the relevant accounts individually as above on merit, the observation of the learned CIT(A) regarding peak worked out at Rs. 23,60,004 vide para 17.2 of his order is rendered irrelevant since the relevance of working out of peak could be with regard to unexplained credits which we have already sustained in some of the accounts independently as above. 8. Next grievance of the assessee is against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sl. No. 33 and consider the same". 8.3 The learned CIT(A) disposed of assessee's claim in paras 18 to 19.4 at p. 31 to 33 of his order. We consider it appropriate to reproduce para 18 of the appellate order as below: "18. The additional ground was made that the stock in this year had been inflated by Rs. 44,25,849: Actual Rs. 32,82,675 was inflated to reduce genuine losses Rs. 77,08,524. AO's objections in this regard were as under: (i) The return was filed voluntarily on30th Oct., 1989, with the audit report which was certified to be true to the personal knowledge of the partner Shri SC. Goyal who signed the return on behalf of his HUF. The report was also signed by the managing partner, besidesC.A.who took the stock position as certified by the managing partner. The appellant took this plea before me in the letter, dt.9th March, 1992but burden was not discharged. On merits, the position was stated as shown in the enclosed chart. Enquiries were made from Shri D.K. Gupta, Auditor whose reply, dt.30th July, 1992, had been enclosed to confirm that the figures of the stock given by the managing partner and accepted by him. Consider this, the request was that the plea should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stocks could not be treated as assessee's income when assessee has to be taxed on its real income and not on any hypothetical income which not at all had resulted to the assessee. Advancing his submissions, he explained that for manufacture of glassware the raw material used is soda ash, silica sand and for manufacturing process coal is used as fuel. For all these items the assessee had maintained day-to-day stock/consumption register, which was produced before the Revenue authorities and no defect stand pointed out therein. In support of his contention he took us through the monthly quantitative chart of steam coal which is based on day-to-day stock register maintained by the assessee, which shows closing stock of coal at 114.870 MT and its value has been shown at Rs. 24,33,463 at p. 89 forming part of the audited balance sheet, which means about 21,340 per MT as against the purchases made by the assessee and accepted by the Revenue in the year under appeal at about Rs. 1,000 per MT. He submitted that such artificial inflation did not bring in any element of real income. Advancing his submissions further Shri Sapra referred to position with regard to Bardana. The same consisted of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether the AO had passed any order under s. 251 of the IT Act, it was submitted by the learned Departmental Representative that while no such order has been passed by the AO,he had declined to give any relief even after the passing of the impugned order by the learned CIT(A) to grant relief to the assessee after verification by passing an order under s. 154 on such application having been filed by the assessee with reference to a show-cause notice under s. 221 of the Act. 9. As both the parties are in appeal before us on the claim made by the assessee before the AO and reiterated before the CIT(A), who restored part of the claim to the file of the AO, but the AO having not passed any order under s. 251 so far, we proceed to decide the issue on merit particularly when the facts as stated above are not in dispute and are also not controverted. Regarding adjustment made in the coal account the learned CIT(A) had declined to give any relief with the following observation in para 19 of his order: "Coal: The value of opening and closing stock are as per the stock register. The value of Khangri were shown in the opening stock. Since it was not adjusted during the year no reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5,71,200 made on 31st March, 1989, keeping in view that in 1988-89 assessment year value of Kachra at Rs. 2,400 has been accepted. 9.3 As regards Bardana account also on the facts summarised above, we feel that value of Bardana obtained from soda ash could not be more than Rs. 15,000 or so keeping in view the value of Rs. 5,200 shown and accepted for 16,744 bags in asst. yr. 1988- 89. We agree with the learned Authorised Representative that some bag must have gone useless, while some must have been used for various purposes. We, therefore, hold that assessee is entitled to a further relief of Rs. 2,40,000. 9.4 Similarly out of adjustment of Rs. 6,19,855 on account of broken glass, we allow relief of Rs. 6 lakhs keeping in view the value of such broken glass accepted at Rs. 7,000 in asst. yr. 1988-89 on total production of 5,581.311 MT, as against the production during the year under appeal at 7,506.554 MT. The assessee is, therefore, held entitled to a total relief of Rs. 23,65,229 (i.e., 2,90,229 plus Rs. 6,70,000 plus Rs. 5,65,000 plus Rs. 2,40,000 plus Rs. 6,00,000 out of adjustment entries of Rs. 24,25,527 made by the assessee on the last day of the accounting period as dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt entries, it would affect the gross profit rate as disclosed at 15.64 per cent as against 15.95 per cent in the immediately preceding assessment year, deserve to be taken note of. We have allowed relief of Rs. 23,65,229 on account of inflation in stocks and deducting this amount from declared gross profit of Rs. 27,92,386, the balance gross profit remains at Rs. 4,27,157. But to this we have to add the additions sustained by us aggregating to nearing Rs. 20 lakhs as above on account of trade advances/cash credits, thus, raising the margin of gross profit to 12.75 per cent, which of course is lower as compared to the immediately preceding assessment year when it was 15.95 per cent. The rate of 15.95 per cent is also as a result of inflated figure of valuation placed on the closing stock of coal, which has been shown by way of Khangri in the chart filed before the CIT(A). All the same, the assessee in his letter, dt.12th Dec., 1991, filed before the AO pointed out that during the last three-four years there has been cut-throat competition in this line of business when a large number of semi-automatic presses had been started in the nearby areas. The assessee further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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