TMI Blog2014 (1) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... s declared under survey of Rs.29,00,000/- and credited P&L account in schedule of 'other income' - The assessee has shown this income separately - The income declared on account of unexplained investment in plant and machinery and office building has been also included as unexplained investment in the total income of the assessee - The assessee has shown increase in the closing stock by Rs.29 lacs and has also shown Rs.29 lacs as other income and it has debited the profit and loss account by Rs.29 lacs - The effect of all three entries is that on two occasions, the amount has been credited in the profit and loss account and it has been debited only once. In the case of unexplained investment in the plant and machinery in the factory building - The income surrendered is included in the profit and loss account and the action of AO has led to double addition – Decided against Revenue. Unexplained purchases/investment – Held that:- The copies of the purchase invoices of raw material and packaging material was produced before the AO and even before the CIT(A) - The AO has failed to establish that purchases shown till 19.02.2001 were having any discrepancy or included any bogus ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, the appellant furnished the necessary explanations against each such party by producing the respective ledger account and confirmation of accounts in most of the cases - In the case of M/s Bata India Ltd., the appellant had shown opening Dr. balance of Rs.38,54,645.60 against which M/s Bata India Ltd. Has indicated an opening Cr. Balance of Rs.14,05,214.33 in favour of the appellant - The appellant had shown excess debit balance of Rs.24,49,431/- and to that extent the appellant had already credited income in the F.Y. 1999-2000 and so even if there is a difference, it cannot be treated as income of the Asstt. Year under consideration – The party was allowed a credit period of 3 months - the assessee has discounted the bills and has met its working capital requirements – This is how the account cannot match. In respect of some parties, although the appellant produced the copies of accounts of the above parties and confirmation of account in such cases before the A.O., all the transaction details as per the claim of the appellant could not be furnished during assessment proceedings but produced before the CIT(A) - The CIT(A) copuld not consider them as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Ld CIT(A) has erred in deleting Rs.9,68,086/- out of total addition of Rs.15,36,786/- made by the AO on account of bad debts written off. 7. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting Rs.27,14,102/- out of total addition of Rs.29,89,673/- made by the AO on account of discrepancies in several parties' accounts." The assessee has taken the following grounds in the cross objections :- "1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in sustaining the addition of Rs.5,68,700/- on account of bad debts written off. 2. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in sustaining the addition of Rs.2,75,571/- on account of alleged discrepancies found in parties accounts. 3. That in any view of the matter and in any case, additions of Rs.5,68,700/- and Rs.2,75,571/- are bad in law and against the facts and circumstances of the case. 4. That the cross objector craves the leave to add, amend, modify, delete any of the ground(s) of cross objection before or at the time of hearing. ITA No.2976/Del./2005 3. In the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase invoices on the date of survey on account of purchases made till the date of survey, it is quite possible that the purchase account prepared on the date of survey did not reveal the actual state of affairs and the appellant subsequently during assessment proceeding produced the necessary accounts along with invoices to support its contention before the A.O. So, I cannot accept the finding of the A.O. that the appellant failed to produce necessary documentary evidences for excess purchases and expenses shown in the new trading account. 5.14 The A.O. has also noted that the appellant failed to furnish the complete addresses of some debtors, creditors and unsecured loan creditors, without pointing out specific instances for the same. On the other hand, the A/R of the appellant argued before me that the details regarding the alleged debtors, creditor have been duly filed before the A.O. and in fact, he had carried out necessary enquiries for the same and no adverse finding could be recorded against such transactions as a result of enquiries launched by the A.O. In absence of any material facts about the observation made by the A.O. I cannot accept this as a ground for rejection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of the same, suppression of sales were detected which were not recorded in the regular books of accounts and this fact itself was sufficient to reject the books of accounts of the assessee. However, in the case of the appellant, no such detection of suppressed sales or unaccounted purchases were made as a result of survey. So, this judicial ruling cannot be adopted in the case of the appellant. 5.16 Similarly, the decisions in the cases of (i) Awadesh Pratap Singh Abdul Rehman and Bros vs. CIT 76 Taxman 10b (Allahabad and (ii) S.N. Namasivayam Chettiar vs. CIT 38 ITR 579 (SC) also cannot be applied in the case of the appellant because the facts are quite different. Non-maintenance of stock register coupled with other defects like vouchers were not forthcoming in respect of expenses, sales were suppressed, bogus expenses were claimed etc. could lead to a legitimate inference that all were not well with the books of accounts maintained by the 'assessee' and accordingly books of accounts deserved to be rejected. However, in the case of the appellant drawing support from the decision of Hon'ble Patna High Court in the case of Md Umer vs. CIT 1975, 101 ITR 525 (Pat), it is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the tune of Rs.6,00,000/- were noted. The appellant during the course of survey surrendered Rs.35,00,000/- as its unaccounted income represented by way of excess stock of Rs.29,00,000/- and unexplained investments in Plant Machinery and factory building of Rs.6,00,000/-. The appellant filed the return of income for A.Y. 2001-02 deducing an income of Rs.4,75,310/-. The return was accompanied with audited P L A/c and Balance Sheet and audit report in from No.3CB. On examination of the P L A/c, it was observed by the A.O. that although 'excess stock' of Rs.29,00,000/- was shown in 'other income' schedule of P L A/c, on the expenditure side the appellant had debited Rs.29,00,000/- as 'goods declared under survey' thereby nullifying the effect of surrender of excess stock of Rs.29;60,000/-. In this regard, the appellant explained before the A.O. that excess stock of Rs.29,00,000/- was included in the closing stock as on 31-03-2001 increasing the book stock from Rs.1,47,88,741.90 to Rs.1,76,88,741.90 which was duly reflected in the manufacturing account. The appellant further passed a journal entry debiting the manufacturing a/c with the 'goods declared under survey' of Rs.29,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e closing stock as on 31.03.2001 as per the accounts submitted by the appellant along with the return of income and so the addition of Rs.29,00,000/- made by the A.O. again in the total income of the appellant amounted to double addition of the same amount. Accordingly, I delete the addition of Rs.29,00,000/-. 7. In this ground, the appellant has objected to addition of Rs.6,00,000/- on account of alleged unexplained investment in Plant Machinery and factory building u/s 69 of I.T. Act, 1961. 7.1 While adjudicating in ground No.(i) (ii), it has been already held that the appellant had shown Rs.6,00,000/- as 'other income' in P L account against 'unexplained investment' in Plant Machinery of Rs.5,00,000/- and 'Unexplained investment' in factory building of Rs.1,00,000/- So, the addition of Rs.6,00,000/- made by the A.O. again in the assessment, amounted to double addition of the same amount. Accordingly, I delete the addition of Rs.6,00,000/- made by the A.O. on account of unexplained investment in Plant Machinery and factory building." 6. After hearing both the sides, we find that the assessee has explained the treatment given by assessee to the excess stock in its bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64,389.90 8.4 This figure being rounded of amounted to Rs.3,47,64,390/- which tallied with the corrected purchase account drawn on the date of survey. The A/R of the appellant submitted that the purchase account on the date of survey was drawn on the basis of purchase invoices available with the appellant till 25.01.2001. Subsequently, the purchase invoices upto the date of survey i..e 19.02.2001 were received which were duly accounted for and the audited purchase account prepared as on the date of survey i.e. 19.02.2001 revealed the following:- Purchase of raw materials : Rs.3,51,50,661.90 Purchase of Packing material : Rs. 12,66,659.10 Rs.3,64,17,321.00 8.5 The figure on this purchase was wrongly taken to be Rs.3,64,17,471/- due to oversight while submitting the same before the A.O. during assessment proceeding. The purchase invoices in respect of purchase of raw materials and packing materials for the period from 25.01.2001 to 19.02.2001 were duly submitted before the A.O. for necessary examination along with names and addresses of the parties. The copies of these invoices were also produced before me. On exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant accounts were furnished before the A.O. for examination as revealed from the assessment records. However, it appears that the A.O. has not caused any inquiries to check the genuineness of such expenses even though the details of such expenses were made available to the A.O. by the appellant during assessment proceedings. The A.O. has disallowed such expenses only on the ground that necessary documentary evidences in support of such expenses could not be produced without recording any specific finding about the non-acceptance of such expenses based on any result of enquiry. Under the circumstances, I am inclined to accept the contention of the appellant that while preparing the manufacturing account on 19.02.2001, just because these expenses were not considered, these expenses could not be treated as bogus. More so, because these expenses have been reflected in the audited accounts after due scrutiny and examination. 9.5 Regarding generator running expenses and repairs and maintenance (P M it is noticed that there were certain payments made upto 19.02.2001 which were debited to the party's a/c instead of the expense account which were rectified in the accounts subsequently a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 which read as under :- "10.5 I have considered the above submissions of the ld. A/R of the appellant and the facts narrated by the A.O. in the assessment order. It is observed that the debts under consideration are long outstanding debts, barring the case of M/s Dees Marketing, for which the sales were made in earlier years which were taken into account in computing the income of the relevant years. According to the provisions of section 36(1)(vii) read with section 36(2) of I.T. Act, 1961. The debts or part thereof which have been written off in the accounts as irrecoverable in a previous year relevant to an asstt. Year, have to be allowed in the said asstt. Year provided such debt or part thereof has been taken into account in computing the income of an assessee in the relevant previous year or in an earlier previous year. The earlier restriction that the debt or part thereof which has to be established to have become bad is withdrawn w.e.f. 01.04.1989 as per Direct Tax Law Amendment Act, 1987. The appellant submitted necessary evidences like copies of accounts, Balance-sheet P L account for earlier years wherein the debts were taken into consideration for computation of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year. 10.9 The deduction u/s 28 also cannot be allowed treating the same as business loss unless the appellant could establish that all efforts have been exhausted to recover such debt during the year under consideration. The same does not stand satisfied as per the evidences filed before me. As a result, I confirm the disallowance of Rs.2,00,000/- made by the A.O. in respect of M/s Deep Marketing. 10.10 As regards, the other debts written off in the accounts, the A/R of the appellant could not furnish the details in respect of such debts either before the A.O. or before me. Accordingly I am unable to entertain the claim of the appellant for such balance debts written off in the accounts. 10.11 To sum up, the claim of bad debts written off amounting to Rs.9,68,086/- is allowed and the balance addition of (Rs.15,36,786/- - Rs.9,68,086/-) i.e. Rs.5,68,700/- is confirmed. Hence, ground No.(iii)(e) is partly allowed." 12. We have heard both the sides on the issue. The AO has made an addition of Rs.15,36,786/-. The AO has discussed this issue at pages 10 to 12 of his order and the CIT (A) has discussed the issue in paras 10 to 10.11 of his order at pages 17 to 21. The debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nations against each such party by producing the respective ledger account and confirmation of accounts in most of the cases. The differences in opening balances were noted in the cases of the following parties :- Name of the party Difference in opening balance (in Rs.) (a) M/s. Bata India Ltd. (Trading transaction) 24,49,431 (Dr) (b) M/s. S.C. Sethi (Loantransaction) 2,07,000 (Cr) (c) M/s. B.D. Trading Co.(Trading transaction) 5,461 (Cr) (d) M/s. Sushma Dhawan (Loan transaction) 49,445 (Cr) (e) M/s. Benlon India Ltd.(Trading transaction) 2,765 (Dr) 27,14,102 11.5 The Differences in balances cannot be inferred to have arisen because of the loan or trading transactions carried out in the year under consideration. Further, in the case of M/s Bata India Ltd., the appellant had shown opening Dr. balance of Rs.38,54,645.60 against which M/s Bata India Ltd. Has indicated an opening Cr. Balance of Rs.14,05,214.33 in favour of the appellant. Thus the appellant had shown excess debit balance of Rs.24,49,431/- and to that extent the appellant had already credited income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.5,461/- Cr balance, in the case of M/s B.D. Trading Co. for trading transactions carried out in earlier year. I find no reason to tax such differences in old opening Dr./Cr. Balance which arose out of transactions in earlier years. 11.8 Further, there were differences in opening Cr. Balance of Rs.2,07,000/- in the case of S.C. Sethi, and of Rs.49,445/- in respect of Sushma Dhawan who were loan creditors. The A/R of the appellant submitted in this regard that the differences cropped up because the appellant had provided interest against these persons on mercantile basis while these creditors had accounted for interest on cash basis. However, since these differences in balances arose out of transactions in earlier year, the A.O. is at liberty to examine these facts and take appropriate action as per law in the relevant assessment years. 11.9 To sum up, in view of the above discussions, I am unable to sustain the addition of Rs.27,14,102/- on account of differences in opening Dr/Cr balances noted against the parties mentioned as above and the appellant would get a relief of Rs.27,14,102/- on this score. 11.10 The difference in closing balances were noted against the following p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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