TMI Blog2008 (9) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head Profits and gains of the business or professions or income from other sources shall be computed in accordance with the method of accountancy employed by an assessee regularly subject to the sub-section (2) of section 145 of the Act. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an assessee, i.e., cash or mercantile - We could appreciate the stand taken by the AO but instead of verifying the explanation of the assessee, he straightway rejected it. There can be truth in the explanation of the assessee. The action on the part of assessee in manipulating the stock statement while disclosing it to the bank may be branded as a immoral or may be infringing any other law. But can substandard moral activity denude the assessee to say that he has no closing stock in his accounts for the purpose of making a disclosure under the Income-tax Act, 1961. It is the AO who has to demonstrate that assessee has an income chargeable to tax. The learned AO miserably failed in that area. He without taking note of fact straightway took cognizance of the information supplied by the bank and then made the addition. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - proprietor of Anand Plastics had died and his business is closed - it was contended that Anand Plastics was a regular customer and assessee has a ledger account with it - amount was taken through banking channel and, therefore, it should not be added - HELD THAT:- It is true that assessee has proved the identity of the payer and genuineness of the transaction but creditworthiness of the creditor is not proved. No evidence has been filed in that connection. On our query, whether this amount has been repaid or adjusted against any purchases made by the creditor during the year or in the subsequent period, the learned counsel for the assessee expressed his inability. If it is repaid subsequently, then it can show that this amount must have been taken from M/s. Anand Plastics. It will rule out the possibility of introduction of assessee s own money through M/s. Anand Plastics. Therefore, we set aside this issue to the file of the AO for verification and readjudication. In the result, this ground of appeal is allowed for statistical purposes. Disallowance on car expenses and telephone expenses - HELD THAT:- Similarly, 1/6th of the phone expenses has also been disallowed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k alleged to have been hypothecated with the bank was not appearing in the closing stock disclosed by the assessee for the purpose of the Income-tax Act, 1961. Therefore, learned Assessing Officer confronted, the assessee as to why he has not disclosed the value of stock hypothecated with the bank in the books of account. In response to the query of Assessing Officer, assessee has filed detailed submissions. It was contended that during financial year 1999-2000, the assessee was appointed as the DEL CRE DRE Agent of M/s. Reliance Industries. As per the terms of the agency agreement, the assessee has to comply with certain terms and conditions. Two main conditions are that he has to make a deposit of Rs. 38,50,000 as security and the second is the bar on trading in reliance products. The assessee was functioning mainly on borrowed funds his own capital as on 1-4-2000 was Rs. 4,66,479. He had to borrow the money to make a security deposit with the Reliance Industries. Under the pressure of the lenders, assessee approached the Syndicate Bank for credit facility of Rs. 50 lakhs. The bank insisted for hypothecation of the stock. Faced with this commercial exigency, assessee agreed to of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hips of the Madras High Court in their decision in the case of CIT v. Sri Padmavathi Cotton Mills 236 ITR 340. Here their Lordships upheld the decision of the Tribunal. The Tribunal came to the conclusion that the closing stock declared in the return filed by the assessee was based on the books of account and it should be accepted rather than the closing stock as declared to the bank which was made for the purpose of securing a loan. The Tribunal followed the decision of the Madras High Court in the case of CIT v. Ramakrishna Mills (Coimbatore) Ltd. 93 ITR 49 wherein it was held that the books of account of the assessee should be taken into consideration for the purpose of ascertaining the correct closing stock and the consequent gross profit. Another similarity between the case discussed above and the appellant s case is that the books of account of the appellant have not been rejected in both cases. From the submissions of the appellant it is amply clear that the stock value was enhanced for the purposes of obtaining a higher loan from the bank. It has been shown by the appellant that the accounts of the appellant are the same before the bank and the Income-tax Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors and debtors appearing in the balance sheet prepared for the purpose of bank and submitted to the bank authority. If the Assessing Officer has to reject the contentions of the assessee that stock statement submitted to the bank was not genuine then he should have verified from the creditors, etc. Assessing Officer did not take step in that direction. He has not pointed out any defect in the books of account submitted by the assessee. He simply rejected the book results and accepted the bank statement as genuine one. 6. We have duly considered the rival contentions and gone through the records carefully. Section 145 has a direct bearing on the controversy, therefore, it is salutary upon us to take note of this provision. "145(1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the official gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. Similarly, if discrepancies between the stock as per stock register and as per declaration given to the bank are established and assessee failed to explain such discrepancies then Assessing Officer would be in his realm of powers to reject the book results and estimate the income. Thus, in case of a discrepancy between the stock statement furnished to the bank and the one available in the books of account for the purpose of Income-tax Act, 1961 then the assessee is required to show that the book figure represent the true stock position with him which are to be relied upon. In the present case, from the very beginning the assessee has taken a plea that he was facing financial difficulty. He has to deposit a sum of Rs. 38,50,000 as security with the Reliance Industries for the agency he has taken. He was not having capital and, therefore, he approached the bank for extending over draft facility to him. To comply with the bank requirements he has shown an artificial stock position available with him. In order to balance that stock position in the balance sheet, he has introduced the sundry creditors as well as bogus purchases. This stand was taken by the assessee before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing it to the bank may be branded as a immoral or may be infringing any other law. But can substandard moral activity denude the assessee to say that he has no closing stock in his accounts for the purpose of making a disclosure under the Income-tax Act, 1961. It is the Assessing Officer who has to demonstrate that assessee has an income chargeable to tax. The learned Assessing Officer miserably failed in that area. He without taking note of fact straightway took cognizance of the information supplied by the bank make reference of 4-5 judgments and then made the addition. On the other hand, learned 1st Appellate Authority appreciated the controversy in right perspective and evaluated whether any income in the shape of unexplained investment in stock in real sense has arisen to assessee or not. The learned CIT(Appeals) recorded a finding that, in fact, there was no closing stock with the assessee whose value can be added. Even for the sake of argument, we accept the stand of the Assessing Officer then this closing stock would become opening stock of the next assessment year and he has to give the credit of that in the next assessment year. In case, the assessee will not be able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been allowed to the assessee. 12. We have duly considered the rival contentions and gone through the records carefully. In order to claim any expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expenses or personal expenses laid out and spent wholly and exclusively for the purpose of business, one s claim has to be examined under the residuary provision of section 37. Hence in order to be eligible for an expenses under this section one has to fulfil the conditions: ( i ) the expenditure must not be governed by the provisions of sections 30 to 36, ( ii ) expenditure must have been laid out wholly and exclusively for the purpose of the business of the assessee, ( iii ) the expenditure must not be personal in nature, ( iv ) the expenditure must not be capital in nature. The expression "wholly" employed in section 37 refers to the quantum of expenditure, while the word "exclusively" refers to the motive, objective and purpose of the expenditure. The Hon ble Delhi High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 while evaluating the approach required to be adopted for appreciating the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on sale of plastic dana, it suggest that he has carried on business. Thus, all these circumstances are to be seen before making the disallowance. In such circumstances, the disallowance cannot be made. The learned 1st Appellate Authority has appreciated the facts and circumstances and deleted the disallowances. We do not find any merit in this ground of appeal also. It is rejected. 14. In the next ground of appeal, the grievance of the revenue is that learned CIT(Appeals) has erred in deleting an addition of Rs. 1 lakh. The brief facts of the case are that assessee has introduced a sum of Rs. 1 lakh in his capital account and alleged that this sum was taken as a loan from Anand Plastics. This was taken through account payee cheque. The proprietor of Anand Plastics had died and his business is closed. The assessee could not file confirmation from the Anand Plastics because no one was available at the business premises. The wife of the proprietor expressed her inability to say anything on this transaction. Learned Assessing Officer rejected the contention of the assessee and made the addition. Before the learned CIT (Appeals), it was contended that Anand Plastics was a regula ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
