TMI Blog2001 (3) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was framed under section 143(1) of the Act on 31-12-1986. Later on, the case was taken up for scrutiny under section 143(2)(b) of the Act. 4. Total purchase during the year amounted to Rs. 18,09,812.86. Though there was opening stock of Rs. 1,56,965.60, the closing stock was only of Rs. 7,062.49. This fact is considered important because of the profit rate in the year under appeal as also in respect of earlier and the later assessment years. The following graphical chart would show that but for the year under appeal and the assessment year 1988-89, the trading results have been accepted though assessments in respect of assessment years 1990-91 and 1991-92 have come to be framed under section 143(3) of the Act :--- --------------------------------------------------------------------------------------------------------------------------------------------------- Asstt. Purchases Sales Gross G.P. Addition Year Profit Rate -------------------------------------------------------------------------------------------------------------------------------------------------- 1985-86 970286 864586 51265 5.9% Nil Assessment under section 143(1) 1986-87 1809812 20844 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are at pages 15, 16 17 or the the assessee's ledger book. (iv) The objection of the ITO that Shri Khazanchi Lal did not remember total sales made to the assessee, was irrelevant and of no consequence as no one possibly could remember such a thing, especially when he was not maintaining any record. (v) The ITO had tried to challenge the affidavit of Shri Khazanchi Lal on the ground that although he admitted to have signed the same, he was unable to tell the contents thereof. Firstly this was factually incorrect as perusal of the statement showed that Shri Khazanchi Lal had duly confirmed his signatures and as well as its contents. Secondly the ITO had not relied on the affidavit alone and had required the presence of Shri Khazanchi Lal who was produced before him. The statement of Shri Khazanchi Lal and his cross examination were duly recorded by the ITO and nothing was found contrary to what had been stated in the affidavit. He had clearly explained that since he believed M/s. J.H. Metals and since he had been making sales of scrap to them, he had verified the sales made to them. (vi) The ITO's objection that Shri Khazanchi Lal was not aware about the rates, was factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of assessment proceedings the appellant-firm had produced Shri Khazanchi Lal from whom the purchases to the extent of Rs. 1,08,510 were made. According to Shri Sud, it is not understood as to what inference could be drawn from the fact that Shri Khazanchi Lal Kabaria has been doing business since assessment year 1985-86 only. The ld. ITO was concerned only with the purchases made in the accounting year relevant to the assessment year under appeal. According to him, the ld. ITO was not justified in doubting the statement of Shri Khazanchi Lal regarding the purchases and was, again, not justified in holding that Shri Khazanchi Lal could not possibly sell the goods as he had started the business with a meagre investment of Rs. 5,000 only. Shri Khazanchi Lal had further explained that he could make a higher sales by taking two strips in a day or so. If a reference is made to the statement and the cross-examination of Shri Khazanchi Lal it is apparent that the ld. ITO did not doubt this aspect at the time of cross-examining Shri Khazanchi Lal. The ld. ITO has tried to challenge the affidavit of Shri Khazanchi Lal on the ground that although he has admitted to have signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase as on 26-9-1985 was for Rs. 6,765 and again of Rs. 6,232 on 27-9-1985, Rs. 5,084 on 28-9-1985 and Rs. 3,080 on 28-9-1985. It means that Kabaria had sold the goods of more than Rs. 20,000 in just four days. Such a person would hardly be treated as a Kabaria. If his volume of business had been at such a level he would have definitely maintained some business premises. He might have employed one or two or more persons to collect the scrap from a number of places and bring it to a particular place. It is not possible to believe the version of the appellant-firm that the Kabaria might be undertaking two visits in a day to purchase the scrap and then sell the same to the appellant firm. The volume of the business would show that the seller of the goods must be having some regular business premises. Some employees and also adequate financial resources. In the present case, Shri Khazanchi Lal is stated to be serving as a polisher of sports goods on a daily wages of Rs.25 to Rs. 30. He also did not have any experience in this line since he is stated to have started the business just about the same time when the purchases are stated to have been made. He also did not have adequate means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal is rejected." 8. In view of the discussion in relation to the assessment order, which was made the basis of the CIT(A)'s decision and considering the contents of the affidavits and that the ITO did not even choose to cross-examine Shri Khazanchi Lal in relation to averments regarding insistence for cash payments when he was examined regarding his transaction with the assessee, in our considered view, addition was not justified and should have been deleted by the CIT(A) on both the counts. We accordingly vacate the addition. 9. This leaves us with ground No. 4 in which disallowance of Rs. 1,500 on account of salary paid to Smt. Usha Rani is contested. 10. The ITO made addition on the ground that the lady being related to the partners of the firm, the onus was heavy on the assessee to prove the legitimacy of claim. Before the CIT(A), a positive assertion was made that she was not related and the salary was paid to her only for five months. This has in terms been noticed by the learned CIT(A) in para 5 of his order. Therefore, holding that the basis of the addition in the first place was wrong, we vacate the disallowance of Rs. 1,500 also. 11. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1986 4611 3-10-1985 14 22-2-1986 4267 7-10-1985 1405 24-2-1986 2181 4-10-1985 93 25-2-1986 3784/50 8-10-1985 1218 26-2-1986 4623 9-10-1985 744 27-2-1986 5220 10-10-1985 828 28-2-1986 5326/50 11-10-1985 1998 28-2-1986 2265 14-10-1985 1446 1-3-1986 3060 22-1-1986 3429 3-3-1986 4770 23-1-1986 3323 4-3-1986 558 24-1-1986 2541 4-3-1986 2745 ----------------------------------------------------------------------------------------------------------------------------------------------- 5. That I insisted the above party to pay me in cash against the goods sold to them as I do not have any bank a/c in my own name. Deponent Sd/- I Khazanchi Lal S/o Shri Sardari Lal do hereby declare whatsoever stated above is true to the best of my knowledge and belief and no part there is false. Deponent" "Statement of Sh. Khazanchi Lal S/o Shri Sardari Lal, aged above 38 years, resident of 12, Shiv Nagar, Sodal Road, Indl. Area, Jalandhar recorded on 23-3-1988 S.S. that I am polisher of sports goods. I am doing this work on daily wages of Rs. 25 to Rs. 30 per day with Shri Sardari Lal my father. I am putting up separately from my father. I am doing the work of a polishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made. Q. From whom you managed the. funds for purchase of scrap and its transportation expenses and mode of transport ? Ans. I had about Rs. 5,000 with me. I used to carry on the business with that money. I used to carry the goods by bus under my supervision. Q. How much scrap you could handle individually ? Ans. I used to purchase 25 to 30 kg. in a single strip. More could not be handled as I had to carry the Scrap myself upto Bus Stand or on a rickshaw. Q. I show you an affidavit dated 17-3-1988 which bears your signatures. Do you confirm your signatures on its and its contents. Ans. I confirm the signatures on it as mine. As regards contents thereof, it is stated that the affidavit was got signed from me by Shri V.K Bahri of M/s. J.H. Metals. I had sold the scrap to them. They have mentioned the sale by me. Since I believe them as such I hate confirmed the contents. I have no records with me. Q. The contents of the affidavit reveals that the sale of scrap by you ranges from Rs. 93 to Rs. 6,765 in a day. Some of the bigger instances are given below :--- 26-9-1985 Rs. 6765 27-9-1985 Rs. 6232 28-9-1985 Rs. 5084 Will you please explain how you could s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass rod cuttings, copper strips, brass sheets and the rate varied from Rs. 45 to Rs. 60 per kg. 17. A perusal of the Affidavit indicated that on 26-9-1986, Sh. Khazanchi Lai has claimed to have sold goods to the assessee amounting to Rs. 6,765 and in terms of weight and quantity this will be more than 100 kgs. Similarly on 27-9-1985 the goods claimed to be sold were valued at Rs. 6,232 and on 28-9-1986 it was Rs. 8,164. Thus on these 3 days the actual sale of scrap will be more than 100 kgs. and on 28-9-1985 it may be more than 150 kgs. During the course of examination Sh. Khazanchi Lai stated before the Assessing Officer that he has been doing this Pheri business by purchasing the goods in cash from parties at Kapurthala or Mandi Gobindgarh and nor from Jalandhar. He has stated that he used to carry the scrap himself upto the Bus Stand and if the weight was more then in a Rickshaw. In this view of the matter, it will be almost impossible to believe that he had carried scrap more than 100 kgs. by Bus from Mandi Gobindgarh or Kapurthala to Jalandhar and sold them on the same day as admittedly Sh. Khazanchi Lai was not having any place of business or place for the storage of scrap. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely M/s. Indo Metals, Sodal Road and M/s. Vikas Metals. Thus, it appears that Sh. Khazanchi Lal has filed the Affidavit as well as given a statement only to accommodate the assessee for reducing its profits by making a claim for bogus purchases amounting to Rs. 1,08,510 as these purchases are not supported by any documentary evidence and the statement of Sh. Khazanchi Lal Kabaria, does not inspire any confidence. 20. In this connection, it will be useful to refer to the observations of the Hon'ble Supreme Court of India in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 at page 541 wherein their Lordships have observed as under :--- ". . . that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals." 21. Therefore, for the reasons given by the learned Assessing Officer as well as the learned first Appellate Authority, I will hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee recorded purchases from them by making internal vouchers. Total purchase during the year amounted to Rs. 18,09,812.86. Though there was opening stock of Rs. 1,56,965.60, the closing stock was only Rs. 7,062.49. The Assessing Officer examined the details of these purchases and rejected the claim of purchase of these items from Kabarias for the reasons fully reproduced by the learned Judicial Member in the order at para 5. The Assessing Officer also took alternative ground for addition of Rs. 90,735 out of the total addition of Rs. 1,08,510 under section 40A(3) of the Act. Thus the Assessing Officer made an addition of Rs. 1,08,510 as cash purchases treated as bogus. 3. Aggrieved by the said order, the assessee took up the matter in appeal before the CIT(Appeals) who upheld the order not only on account of alleged bogus purchases but on the basis of the provisions of section 40A(3) of the Act also. 4. Still aggrieved, the assessee came up in appeal before the Tribunal. The learned Judicial Member was of the view that the order of the CIT(Appeals) cannot be sustained in view of the fact that the Assessing Officer did not even care to cross-examine Shri Khazanchi Lal K ..... 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