TMI Blog1997 (1) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has claimed a bad debt of Rs. 28,77,420 along with the details of the bad debt. It is stated that he sold the above goods to Shri Bhagwandas Aggarwal whose office is on Aaram Hotel, Chowpatty, Bombay, and who was residing at BMC Building, No. 6, Clock Road, Haji Ali, Bombay. He has given date-wise sale of the said goods to the above party, furnished photo-copies of delivery challans. He has also given photocopies of 4 letters issued by him to the party. As to reasons for claiming it as a bad debt, it is contended by him that Shri Bhagwandas Aggarwal had left Bombay and his whereabouts are not known. The Ward Inspector visited the office and residential premises and found that Shri Bhagwandas Aggarwal had left and his whereabouts are not known. The assessee has, filed a copy of the account of the above party recorded in his books of account. The conditions laid down in section 36(1)(vii) read with sub-section (2) seem to have been fulfilled. Therefore, the claim of the assesse is allowed. As and when he recovers the payment, the same will be subjected to tax. On the basis of the Commissioner s holding that the assessment order was erroneous and prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party were also furnished along with photo-copies of delivery challans. In addition, the assessee also filed photo-copies of four letters issued to the said party, Bhagwandas Aggarwal. As regards the cash sales, there was no dispute since the amount due was fully recovered against delivery. In respect of certain credit sales with Bhagwandas Aggarwal at the time when the books were drawn up, the assessee had no hope of recovering the said sum of Rs. 28,77,420 and, hence, he claimed the same as bad debt. An entry to that effect was also made in the books of account prepared later on. The Assessing Officer allowed the claim after satisfying himself that the provisions of section 36(1)(vii) have been complied with. For arriving at this finding, he also deputed an Inspector who submitted his report to the effect that the party was not traceable. The assessment was, therefore, completed by the Assessing Officer under section 143(3) of the Act, after examining the details and the income for the year under consideration was computed at Rs.1,00,03,020. It included an addition of Rs. 23,84,743 being the value of defective CRCA sheets, estimated interest of Rs. 88,685 on interest free l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Feeling aggrieved, the assessee is in appeal before us. During the course of the hearing, Sri A. V. Sonde, learned counsel for the assessee, contended that the order passed by the Commissioner is bad in law since he had traversed beyond the terms of the notice issued under section 263 of the Act wherein he had indicated that only certain specific issues were to be treated as prejudicial to the interests of the Revenue. The notice issued does not empower the Commissioner to set aside the entire assessment, more so in view of the fact that some of the issues were considered in appeal by the Commissioner of Income-tax (Appeals) against which the Department itself is in appeal before the Tribunal. He also drew our attention to the order under section 143(3) of the Act passed by the Assessing Officer, wherein he had clearly recorded that all the relevant details necessary for finalising the assessment were furnished and it was, therefore, incorrect on the part of the Commissioner to take a different view that the Assessing Officer failed to examine all the relevant details while finalising the assessment order. In respect of the allowance of bad debts, it was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(3) of the Act was passed and against that order, an appeal was also pending before the Tribunal, the appeal having been preferred by the Department. According to learned counsel, the Commissioner, therefore, cannot at this stage hold that the return was invalid and if that be the case, the consequent action taken in pursuance of the return will also be bad. Learned counsel, therefore, submitted that the observations made by the Commissioner in his order are outside the power conferred upon him by virtue of the provisions of section 263(1), of the Act. He also submitted that finding the challans in serial number does not mean that the same should be disbelieved. The copy of the detailed reply, dated February 15, 1994, is available at pages 34 to 39 of the paper book. A copy of the trading account is at page 23 of the paper book and the bad debt written off amounting to Rs. 28,77,420 finds a place in the same. The details of the aforesaid sum of Rs. 28,77,420 appear on page 22 of the paper book, which is Bhagwandas Aggarwal s account. Further, relevant details on the scores are available at page 21 of the paper book. Sri Sonde also submitted that the said Bhagwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overi and Co. Ltd. v. ITO [1989] 31 ITD 408 (Bom). We have heard the rival submissions and the material available on record. We have also gone through the various cases cited at the Bar. In our opinion, there is considerable force in the arguments advanced on behalf of the assessee, so far as the bad debts of Rs. 28,77,420, interest free loans of Rs. 8,35,000 given by the assessee to his wife as also so far as the defective return are concerned. Section 263 of the Act empowers the Commissioner to call for and examine the record of any proceedings under this Act and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case may justify. It would be apposite to make a reference to the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Limited [1993] 203 ITR 108 (Bom). In the said case the court observed that section 263 of the Act is in the nature of supervisory jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case. In the instant case, the claim of the assessee for bad debt and interest-free loan was accepted by the Assessing Officer on being satisfied about the genuineness of the same by himself and through the enquiries made by the Ward Inspector. The fact that the Assessing Officer had made necessary enquiries becomes abundantly clear from a perusal of paragraph 6 of the assessment order in so far as the claim for bad debt is concerned. The said portion has already been extracted above. So far as the claim for interest-free loan of Rs. 8,35,000 is concerned, the following stated by the Assessing Officer in paragraph 8 of his order may be reproduced : 8. Information was received from the Assessing Officer assessing Smt. Harvinder Singh Kaur, wife of the assessee, that he had advanced interest-free loan of Rs. 8,35,000 to her during this year on which she had earned interest income of Rs. 88,685. The Assessing Officer had assessed the said interest income on protective basis in her hands. The assesse was asked to explain on this point. He had given the details of the interest free loan advanced to his wife from which it is seen that all the amounts have gone from his bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to persuade myself to agree with certain observations and the conclusion arrived at by him and hence respectfully proceed to make this separate order. The assessee is in appeal before us challenging the validity of the order under section 263 of the Income-tax Act, 1961, on the following four grounds : 1. The Commissioner of Income-tax erred in setting aside the assessment made by the Assistant Commissioner without considering the legal and factual submissions made at the time of hearing. The Commissioner of Income-tax s action in setting aside the original assessment is bad in law since no prima facie case was made out for applying the provisions of section 263. 2. The Commissioner of Income-tax erred in holding that the Assessing Officer was not right in allowing the claim of bad debts and also in respect of interest-free loans advanced to wife even though the claim was allowed by the Assessing Officer on the basis of evidence adduced and was also considered by Commissioner of Income-tax (Appeals) in appellate proceedings. 3. The Commissioner of Income-tax erred in setting aside the order under section 143(3) even though the said order had merged with the Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kaur. The notice under section 263 was dated January 13, 1994, whereas the order of the Commissioner of Income-tax (Appeals) was dated October 1, 1992. As per the grounds of appeal on record, raised before the Commissioner of Income-tax (Appeals), we observe that none of the above grounds are there. In fact, it would have been ridiculous to find them there as the Assessing Officer has allowed the assessee s claim for bad debt and as regards the second ground no addition has been made. The Assessing Officer has made an addition of interest amount only on the loan given by the assessee to his wife. The ground contesting the addition of the said interest was raised before the Commissioner of Income-tax (Appeals), but it is quite distinct from the ground relating to genuineness of the loan transaction. The above discussion will answer grounds Nos. 2, 3 and 4 raised by the assessee in this appeal. Ground No. 2 is rejected in so far as the two matters mentioned therein were never the subject matter of consideration before the Commissioner of Income-tax (Appeals). Ground No. 3 is also rejected in so far as as per clause (c) of the Explanation to section 263(1), the entire order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper verification were before the Assessing Officer and hence the claim was rightly allowed. Certain facts emerging from the material on record are very pertinent. In reply to question No. 5 mentioned in the statement recorded on February 20, 1990, the assessee has clearly replied that he does not maintain any books of account or other records for steel trading business. Further, in reply to question No. 3 in the statement recorded on February 21, 1990, the assessee has mentioned that he has gone through his statement under section 131 dated February 20, 1990, carefully and confirmed that the same has been correctly recorded. Still further, as a part of his answer to question No. 7 in the statement under section 132(4), he mentioned that the income of Rs. 92,50,000 was being offered under section 132(4) after considering and taking into account the profit and loss made thereon. Then he has given the breakup as to how this Rs. 92,50,000 stands invested. As per the break-up the various items of stocks amount to Rs. 55,33,488 and other investments and assets amount to Rs. 37,16,512. Then questions Nos. 8 and 11 and the respective replies are as under : Question 8.-Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forts to collect the money have gone in vain and hence he wrote it off as bad. The assessee also submitted a statement purporting to be a copy of the ledger account of Shri Bhagwandas Aggarwal and also a copy of the bad debt account. He also furnished photo-copies of delivery challans as also of four letters written by him to the party. Based on this information, the Assessing Officer granted the claim of the assessee as regards bad debt. As regards the allowability of bad debts, what section 36(1)(vii) requires is that the debt must have been written off in the accounts of the assessee of the previous year. Thus as per the provisions, mere write-off of the debt in the accounts is sufficient and nothing more. Thus, two things ought to have existed while claiming the deduction of bad debtone, existence of the debt and two, existence of books of account where it can be written off as bad. Now, the question is, in the backdrop of the factual scenario given in paragraphs 18 to 24 (pages 96) above, did the Assessing Officer conduct proper enquiry in order to satisfy himself of the assessee s claim or not. Shri Arvind Sonde, learned counsel for the assessee, pleaded, he did Nowhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay, it was through Shri Inder Dev Vij of Delhi and this appears to be somewhat incomprehensible-though not wholly impossible and should have certainly prompted the Assessing Officer to call for details which can prove the existence of the debt. But he failed to do so. Further, for not getting the accounts audited under section 44AB, the assessee seeks shelter of unaccounted income and for the claim of bad debt he says the Assessing Officer has examined the books. This is not permissible.The sending of the Ward Inspector by the Assessing Officer at the address given by the assessee to trace the said Shri Bhagwandas was a futile exercise as the very claim of the assessee for allowance of bad debt was his alleged flight from Bombay. Considering the facts of the case, the Assessing Officer, instead of going for the so called verification of the bad debt, should have first satisfied himself of the existence of the particular debt and that is where he failed to conduct the relevant enquiries. As regards the amount of Rs. 8,34,000 advanced by the assessee to his wife, the observation of the Assessing Officer at paragraph 8 of his order is very vague. Here also lack of enquiry on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t delivery challans and four letters were submitted not before March 23, 1992, when it was already written off as bad on October 31, 1990. Similar is the case with respect to the alleged loan advanced by the assessee to his wife. Information was received from the Assessing Officer assessing the wife of the assessee that he had advanced Rs. 8,35,000 to her. In respect of this, the Assessing Officer simply mentions that the details given by the assessee are checked and that the amounts have gone from the bank account and are properly explained. Here again, I repeat, the issue is not of elaboration but it should have occurred to the Assessing Officer that the declared income is Rs. 92,50,000, the break-up given by the assessee of this Rs. 92,50,000 does not reflect the amount advanced to his wife, nor does the balance-sheet reflect this amount. Thus the source from where he got this amount remains unknown. In this sense though the material on record reflects something else, the order passed by the Assessing Officer becomes erroneous which has caused prejudice to the interests of the Revenue. In view of the above position, I uphold the action of the Commissioner of Income-tax in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elligence Wing of the Income-tax Department that a number of parties were storing their unaccounted imported CRCA sheets in certain warehouses, action under section 132 of the Act was taken in respect of a few warehouses. The warehouses of Western India Steel Traders was also covered under the said section on January 12, 1990. Stocks of CRCA sheets and coils valued at Rs. 1.45 crores were found in the warehouses and those were placed under constructive seizure. Thereafter, the appellant sent letters dated January 23, 1990, and January 29, 1990, to the ADIT, Unit 11(2), Bombay (refer to question No. 4 of statement under section 131 of the appellant dated February 20, 1990), in which he admitted that the stock of CRCA sheets and coils found at the warehouse of Western India Steel Traders and lying there in the names of Kai International, Asish Enterprises and Ambassador Industrial Corporation belong to him which he intends to offer under section 132(4) as his unexplained investment. The statement of the appellant was recorded under section 131 of the Act on February 20, 1990, in which he, inter alia, admitted that the entire stock of CRCA sheets/coils kept in the warehouse of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered accountant, Shri Vinod S. Mehta, vide his letter dated March 27, 1990, filed the details of working of business transactions as well as working of peak investment in support of the offer of taxing Rs. 92,50,000 along with certain enclosures containing the following : (i) Peak of cash rotation statement, (ii) Details of purchases and sales otherwise, (iii) Reconciliation peak-profit and stock, investment and assets, (iv) Quantity account of stock (statement of sales and purchases). In the aforesaid statement dated February 21, 1990, the appellant in reply to question No. 6 has admitted that initially he invested his unaccounted income from brokerage for purchasing such CRCA sheets/ coils. Subsequently, the profits earned on sale and purchase of CRCA sheets/ coils were invested in acquiring the aforesaid stock of Rs. 92,50,000 (peak). All the sales and purchases were effected in unaccounted terms during the current financial year 1989-90. The appellant in answer to question No. 7 offered an income of Rs. 92,50,000 as his income under section 132(4) for the current financial year 1989-90, i.e., the assessment year 1990-91, and further stated that the said income has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15 to 21 of the said statement, Shri Makkar has stated the following facts : (a) Purchase and sale are in cash only. (b) Dealings are only through brokers. (c) Delivery is only against cash payment. The reply to question No. 21 is reproduced below : I purchase the goods in cash against delivery and in sale delivery is given against cash only . The return of income was due to be filed under section 139(1) on October 31, 1990, but the appellant did not voluntarily file the return before the aforesaid due date. A notice under section 148 of the Act dated May 16, 1991, was served on the assessee. Reminders dated July 8, 1991, July 31, 1991, and August 9, 1991, were issued asking him to file the return of income. The assessee ultimately filed the return of income on October 31, 1991, declaring income of Rs. 64,35,580 computed as below : (Rs.) (Rs.) Salary 70,000 Less : Standard deduction under section 16 12,000 58,000 Directors fees 5,000 Business income offered under section 132(4) 92,50,000 Bad debts 28,77,420 63,72, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten off the amounts as bad debts. In any event, if I recover any money, same will be treated as my income. The details of sales on credit made to the aforesaid party, a copy of the account of Shri Bhagwandas Aggarwal, a copy of the bad debts account, the trading and profit and loss account and balance-sheet (copies placed at pages 21 to 23 of paper book) were also stated to have been furnished before the Assessing Officer. A perusal of the account of debtor Shri Bhagwandas Aggarwal (sun-dry debtors) shows the following details : (Rs.) (Rs.) 21-12-89 To sales 1,08,050 31-3-90 J (bad debts) 28,77,420 22-12-89 To sales 8,29,150 23-12-89 To sales 2,16,300 5-1-90 To sales 2,07,480 8-1-90 To sales 1,03,740 9-1-90 To sales 2,07,480 10-1-90 To sales 3,80,380 11-1-90 To sales 1,03,740 28,77,420 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide as being erroneous in so far as it is prejudicial to the interests of the Revenue for the following reasons : (1) The claim of the assessee for bad debts of Rs. 28,77,420 was allowed by the Assessing Officer without proper scrutiny and without looking into the conditions prescribed under clause (i) of sub-section (2) of section 36 of the Income-tax Act, 1961. (2) The Assessing Officer also completed the assessment without making enquiries about the source of funds for the amount of Rs. 8,35,000 given by the assessee to his wife, Smt. Harvinder Singh Kaur. The Commissioner of Income-tax after considering the submissions made on behalf of the appellant, inter alia, gave the following findings : The decision of the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108, does not at all apply to the facts of the assessee s case. It has only been laid down by the Bombay High Court in the decision that a Commissioner of Income-tax cannot revise an order merely because he disagrees with the conclusion arrived at by the Income-tax Officer. In the assessee s case, on the other hand, as per the various facts and circumstances of the case and as is clear from the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foregoing paragraphs of this order, it is clear that the Assessing Officer had not completed the enquiries in regard to the various bank accounts operated by the assessee through the Punjab and Sind Bank about which the information was available to the Assessing Officer and further the Assessing Officer also did not enquire into the source of funds in the personal bank account of the assesse through which the assessee had advanced monies to his wife. Apart from this, several other irregularities have also been committed and the assessment had been completed in a manner wholly prejudicial to the interests of the Revenue. I, therefore, hold that the assessment requires to be made afresh after indepth examination and investigation into the assessee s case and after making various enquiries which are required to be made as per the various observations in this order. To enable the Assessing Officer to do so, the assessment made by the then A. C. Cent. Circle 30, in the assessee s case for the assessment year 1990-91 on May 7, 1992, is set aside, and the assessment should be made afresh according to law. The learned Commissioner of Income-tax has given elaborate reasons in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Accountant Member has, however, upheld the order of the Commissioner of Income-tax in relation to the two matters raised by the Commissioner of Income-tax in his notice dated January 13, 1994. He submitted that an order under section 263 cannot be sustained in part. Learned counsel submitted that the learned Accountant Member has grossly erred in holding that the Assessing Officer had accepted the claim of bad debts of Rs. 28,77,420 and the explanation submitted by the assesse for explaining the sources of advancing the loan of Rs. 8,35,000 without making proper enquiries and investigation. As regards claim for bad debts of Rs. 28,77,420, learned counsel invited my attention towards paragraph 6 of the original assessment order. He pointed out that the Assessing Officer had specifically required the assesse to submit details and evidence in support of such a claim. The assesse submitted a detailed letter in response to the said query letter and submitted all the relevant details and evidence. The assessee had duly submitted the full address of the said customer, Shri Bhagwandas Aggarwal, to whom the goods were sold on credit. The copy of the debtor s account, copy of bad debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries. Learned counsel placed heavy reliance on the judgment of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 to support his contention that the Commissioner of Income-tax cannot revise the order made by the Assessing Officer merely because he happens to form a different opinion from the conclusion arrived at by the Assessing Officer after making necessary enquiries and investigation. The Commissioner of Income-tax cannot substitute his judgment over that of the Assessing Officer in cases where the claim was accepted by the Assessing Officer after making full and proper enquiries. Learned counsel further placed reliance on the judgments in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 (Guj), Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) to support his contention that both the conditions prescribed in section 263, namely, that the order was erroneous and that such erroneous order caused prejudice to the interests of the Revenue, should co-exist and should be cumulatively satisfied. He submitted that in the instant case, the order was passed by the Assessing Officer after making d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f time after a gap of 2 years of the raid and after offering Rs. 92,50,000 as income liable to tax, has prepared bogus challans and bogus letters in the name of a bogus customer showing a bogus address with a view to make such a false claim of bad debt. The learned Departmental representative submitted that the learned Accountant Member has given a specific finding of fact that the Assessing Officer has nowhere in the order passed by him mentioned that he has verified the books of account or even a finding that the books of account were produced for verification. The Assessing Officer has merely recorded that the assessee had filed copy of the account of the above party recorded in his books of account . This, in no way goes to prove that the assesse has written the books, particularly so, in the context of the facts mentioned in the statements recorded during the course of the search. The learned Accountant Member has also recorded a firm finding of fact that the books of account were not produced before the Tribunal even when specifically asked for. The learned Departmental representative further submitted that the Assessing Officer in paragraph 26 of the original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to ensure as to whether the claim of bad debt of Rs. 28,77,420 can be said to be a part of the income of Rs. 92,50,000 offered in the statement dated February 21, 1990. This also shows complete failure on the part of the Assessing Officer to make proper enquiries and investigation. The learned Departmental representative further contended that no reliance can be placed on the order of the Commissioner of Income-tax (Appeals) dated August 5, 1996, against the fresh order, as that order is the subject matter of the Revenue s appeal before the Tribunal against that order. The learned Departmental representative also drew my attention towards the judgments in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312 (Guj), CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad), Indequip Ltd. v. CIT [1993] 202 ITR 417 (Bom) and [1992] 193 ITR (St.) 4. As regards the second item of loan of Rs. 8,35,000 advanced by the assessee to his wife, the learned Departmental representative submitted that the Assessing Officer in paragraph 8 of the assessment order has observed Intimation was received from the Assessing Officer assessing Sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave again been produced before the Assessing Officer in the course of fresh assessment proceedings. All the relevant details relating to the claim of bad debt and the loan given to the wife, all bank pass books were duly produced during the original assessment proceedings. The balance-sheet placed at page 23 of the paper book is the balance-sheet pertaining to the steel business. The loan given to the wife was duly reflected in a separate balance-sheet, which was duly produced during the course of original assessment proceedings. He repeated the various arguments advanced earlier. I had requested learned counsel for the assessee to let me know as to whether the books of account, the said separate balance-sheet claimed to have been furnished before the Assessing Officer are available and can be produced. Initially the instant reply of learned counsel was that the books of account and the balance-sheets, etc., are available and these can be produced today, i.e., on January 7, 1997. But after talking to the person sitting by his side, learned counsel expressed his inability to produce the same on that date on the ground that the appellant was out of station. He requested for grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not produced before the regular Bench of the Tribunal in spite of specific requirement made by the Bench, as has been clearly and specifically mentioned in the order passed by the learned Accountant Member. Even if it is assumed that the books of account in fact exist, and even if it would have been produced before me, there still remains an uncontroverted fact that there is no material on record to show that those books of account were produced before the Assessing Officer or that the Assessing Officer had examined those books of account before completing the original assessment. In view of the foregoing reasons and in view of the fact that I have fully heard the learned representatives of both the sides at considerable length, I did not find any merit in the assessee s request for allowing further time as mentioned in their letter dated January 7, 1997, submitted on January 8, 1997. Learned counsel for the assessee was duly informed during the hearing on January 8, 1997, that such request for allowing further time for this purpose cannot be accepted. This was duly noted by learned counsel on the bottom of the said application. After my return to Delhi, I received one more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the same was not recorded anywhere in his records. He had further specifically admitted in the above referred statements that he did not maintain any books of account or other records for such steel trading business. In the statement of fact annexed with the present appeal, the appellant has, inter alia, mentioned that at the time of search, the books of account were not properly written and the transactions on which the amount was offered for taxation were kept outside the books of account. Subsequent to the search, the return of income was filed on October 31, 1991, declaring income of Rs. 64,35,580 . . . The books of account were ready before filing the return and were produced for scrutiny before the Assessing Officer. In the return filed, the appellant had claimed bad debts of Rs. 28,77,420 and the details in support of the claim filed. The appellant has failed to adduce any evidence that the books of account containing entries relating to unaccounted purchases and sales resulting in unaccounted income of Rs. 92,50,000 were produced before the Assessing Officer or that the Assessing Officer had examined those books of account before completing the original assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed the address of the debtor and furnished certain details for the first time vide letter dated March 23, 1992, the contents of which have already been reproduced in the earlier part of their order. The appellant gave the office and residential address of the said debtor, Shri Bhagwandas Aggarwal, and furnished details of alleged goods sold to him on credit, and stated that the debtor has vanished and run away. All efforts to locate the person failed and hence the amount was written off as a bad debt. It appears that the assessee also submitted a copy of the debtor s account, copies of challans bearing S. Nos. 101 to 110 alleged to have been issued to Shri Bhagwandas and copies of certain letters purported to have been sent to Shri Bhagwandas. The Assessing Officer deputed the Ward Inspector who had gone to the addresses given by the assesse and reported that Shri Bhagwandas had left and his whereabouts are not known. The Assessing Officer accepted the claim of bad debt without making any further enquiries and investigation. In my view, the Assessing Officer failed to apply his mind to the various vital facts and circumstances, such as the following, on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment and assets . In reply to question No. 8 he stated that out of Rs. 37,16,512 a very small portion is lying in the form of cash and a major amount in the form of Sundry debtors, to whom I have sold the materials on credit through the broker at Delhi one Shri Indira Dev and advances against the goods. (page 11 of the paper book). During the course of hearing, learned counsel with reference to the statement of facts annexed with the appeal submitted that a letter dated March 27, 1990, was submitted to the ADI along with various enclosures. Unsigned and unauthenticated typed copies of the enclosures of the said letter were submitted. Learned counsel was required to give a certificate under the signature of the authorised person that these papers are true copies of enclosures of letter dated March 27, 1990. Learned counsel refused to certify or sign those papers, on the ground that the appellant was out of town. One of those enclosures marked as Reconciliation Peak-Profit and Stock Investment and Assets is reproduced hereunder : Peak offered 91,09,627 Stock 55,33,488 Profit 2,86,220 Sundry debtors 28,77,420 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the other investment and assets of Rs. 37,16,512 also include advances against the goods. During the course of search proceedings or subsequent proceedings the appellant never contended that the said advance was given to Shri Indira Dev as an advance against the goods. Shri Indira Dev was not the supplier of goods nor the buying agent. In statement dated February 20, 1990, under section 131, the assesse stated that the goods have been purchased locally through the broker, Mahendrabhai, and he does not know the names of the sellers. If the fact of advances against goods is taken into consideration in addition to Rs. 7,00,000 given to Shri Indira Dev and the amount of cash in hand and stock shown in the statement of investments of income of Rs. 92,50,000, reproduced in the earlier part of this order, the balance amount will not be adequate enough to cover the alleged balance of Rs. 28,77,420 outstanding against Shri Bhagwandas Aggarwal. The Assessing Officer should have also considered the well known commercial practice that any trader before making sales of goods on credit of such large amount to any buyer will gather necessary information about the financial capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andas Aggarwal. He also ought to have examined those transporters and their records. The Assessing Officer should have called for the books of account and ought to have examined all the entries of purchases, sales, transportation expenses, etc. The Assessing Officer should have kept in mind the fact that the appellant in the statements dated February 20, 1990, and February 21, 1990, had categorically and specifically admitted that he did not maintain any books of account or other records for the unaccounted transactions of steel trading business. It is indeed strange that without maintaining any other records whatsoever, books of account could be prepared at a later point of time after the search. It is beyond comprehension that a person can prepare reliable and correct books of account pertaining to several transactions of purchases, sales, expenses, which took place prior to the date of search, after a gap of a long period after the search. In case the books of account were subsequently prepared on the basis of certain other primary records not shown during the search, the Assessing Officer should have called for such primary records and ought to have carefully examined the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bad debt of Rs. 28,77,420 without making necessary enquiries and investigation. Now, I will deal with the other point relating to sources of advancing of loan of Rs. 8,35,000 by the assessee to his wife. The facts relating to this point have also been discussed in detail in the earlier part of this order. The Assessing Officer vide letter dated January 21, 1992, required the assessee to explain the sources of advancing the said loan. The assessee vide reply dated March 18, 1990, gave details of opening balance and further loan advanced to her during the year under consideration and stated that law does not oblige him to charge interest from his wife particularly when the assessee has not paid interest to the outsiders. The Assessing Officer simply observed that the assessee has given the details of interest-free loan advanced to his wife and all the amounts have gone from his bank account and are properly explained. There is no material on record that the assessee produced the copy of his savings bank account No. 4335 with New Bank of India before the Assessing Officer. The Assessing Officer also did not call for the copy of the bank pass books of the said account and did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowability of the claim for deduction which indicated non-application of mind. According to the Commissioner of Income-tax, the claim of the assessee required examination as to whether the expenditure in question was revenue or capital expenditure. In that view of the matter, he cancelled the order of the Income-tax Officer in this regard and directed him to make a fresh assessment on the lines indicated by him. On these facts, the Bombay High Court after discussing the principles of law relating to the scope of section 263 laid down in various judgments, gave the following decision (see [1993] 203 ITR 108, 117) : We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income tax Officer cannot be held to be erroneous simply because in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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