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2010 (4) TMI 1061 - AT - Income TaxThird member appointment - difference between the ld' JM and the ld' AM - addition u/s 68 - cash credits unexplained - JM confirmed the impugned deletion made by CIT(A) while the learned AM upheld the addition made by the AO - HELD THAT - The assessee has given the complete addresses. The summons were duly served on these parties. AO had drawn an inference against the assessee and made the addition without enforcing the attendance of the parties to whom the summons were issued and duly served. AO even did not give an opportunity to the assessee that these parties did not appear even after the service of the summons but made the addition. As per me AO was bound to give opportunity to the assessee before taking the adverse inference against the assessee. Once the summons have duly been served on the parties, the identities of the parties are duly proved. AO has not done anything except serving summons so that the attendance of the parties could be enforced. Even the assessee was not made known about the non-appearance of the parties. T AO was duty bound to give opportunity to the assessee before drawing an inference against the assessee. The case of the assessee is duly covered by the decision of Nathu Ram Premchand s case 1962 (8) TMI 81 - ALLAHABAD HIGH COURT . - AM has not distinguished the facts of the case with the decision of the Allahabad High Court in the case of Nathu Ram Premchand (supra) while confirming the addition made by the Assessing Officer. Once the AO has not given opportunity to the assessee for the 3 creditors for which the assessee asked to issue summons, the inference cannot be drawn against the assessee. The summons were duly served. Under these facts, the assessee has discharged his onus what can be expected from. The CIT(A) has rightly deleted the addition and the learned JM was correct in law in holding that the issue is squarely covered by the decision of the jurisdictional High Court. Question No. 1 is answered in favour of the assessee. Unrecorded investments for purchase of goods - JM confirmed the action of the CIT(A) in deleting addition while the learned AM confirmed the addition - HELD THAT - From the copy of account, as noted that against all the transactions relating to the assessee, the bill numbers are duly mentioned but in respect of the transactions which the assessee has denied, M/s. Narain Food Products has not mentioned any bill number but has shown the draft, bank etc. Thus no addition can be made merely on the basis of the evidence procured by the third party unless and until that party is put to the assessee for cross-examination, specially when the assessee has categorically denied the transaction. Statement relied on by the Revenue itself does not disclose the bill number through which transaction is entered into. It only contains through drafts etc., only. Therefore, this evidence, cannot be a valid evidence to make the addition. Once the assessee had denied the transaction, the Assessing Officer was bound to adduce the evidences for the rebuttal of assessee - AO has not done so. Therefore, under the facts of the case, I agree with the learned JM deleting the addition. The matter will now go before the regular Bench for deciding the appeal in accordance with the majority opinion.
Issues Involved:
1. Deletion of an addition of Rs. 2,00,000 made on account of unexplained cash credit. 2. Deletion of an addition of Rs. 6,81,253 made on account of low trading results. 3. Deletion of an addition of Rs. 40,000 made on account of unvouched expenses. 4. Deletion of an addition of Rs. 18,000 made under section 40A(2)(b) of the Act. 5. Deletion of an addition of Rs. 85,205 made on account of unrecorded investment for the purchase of goods. 6. Legality of proceedings initiated under section 147 of the IT Act, 1961. Detailed Analysis: 1. Deletion of an Addition of Rs. 2,00,000 Made on Account of Unexplained Cash Credit: The Assessing Officer (AO) added Rs. 2,00,000 under section 68 of the Act due to unexplained cash credits from three creditors who did not respond to summons. The CIT(A) deleted the addition, reasoning that the assessee had provided necessary details regarding the identity, genuineness, and creditworthiness of the creditors. The Tribunal upheld the CIT(A)'s decision, emphasizing that the non-compliance of summons by creditors does not justify an adverse inference against the assessee, aligning with precedents set by various High Courts. The Third Member also agreed with the CIT(A) and the Judicial Member, confirming that the assessee had discharged the onus by providing complete details. 2. Deletion of an Addition of Rs. 6,81,253 Made on Account of Low Trading Results: The AO rejected the assessee's books of account under section 145(3) due to numerous defects and discrepancies, adopting a gross profit (GP) rate of 6% and adding Rs. 6,81,253. The CIT(A) deleted the addition, noting that the assessee had maintained proper books of account, which were audited, and that the AO's comparable cases were not relevant as they involved manufacturers while the assessee was a trader. The Tribunal upheld the CIT(A)'s decision, stating that the small decline in the GP rate was justified given the significant increase in turnover. 3. Deletion of an Addition of Rs. 40,000 Made on Account of Unvouched Expenses: The AO disallowed Rs. 48,000 out of various expenses, but the CIT(A) restricted the disallowance to Rs. 8,000. The Tribunal found the AO's disallowances to be ad hoc and without valid reasons, except for telephone expenses where a partial disallowance was justified. Consequently, the Tribunal upheld the CIT(A)'s decision to restrict the disallowance to Rs. 8,000. 4. Deletion of an Addition of Rs. 18,000 Made Under Section 40A(2)(b) of the Act: The AO treated Rs. 18,000 of the Rs. 90,000 rent paid to the assessee's mother as excessive under section 40A(2)(b). The CIT(A) deleted the addition, noting that the AO had not provided any evidence of prevailing market rates to justify the disallowance. The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to prove the rent was excessive. 5. Deletion of an Addition of Rs. 85,205 Made on Account of Unrecorded Investment for the Purchase of Goods: The AO added Rs. 85,205 based on a discrepancy found in the books of a third party (M/s. Narain Food Products). The CIT(A) deleted the addition, as the AO did not provide corroborative evidence linking the transaction to the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to substantiate the claim with credible evidence. The Third Member also agreed, noting that the addition was based solely on third-party evidence without proper cross-examination. 6. Legality of Proceedings Initiated Under Section 147 of the IT Act, 1961: The AO initiated proceedings under section 147 based on findings from a survey conducted under section 133A. The assessee challenged the initiation, arguing that the AO did not have "reasons to believe" that income had escaped assessment. The Tribunal found that the AO had sufficient grounds to initiate proceedings under section 147, as the survey revealed that the assessee had taxable income but had not filed a return. Consequently, the Tribunal dismissed the assessee's challenge to the initiation of proceedings. Conclusion: The Tribunal upheld the CIT(A)'s deletions of additions related to unexplained cash credits, low trading results, unvouched expenses, and unrecorded investments. The Tribunal also confirmed the legality of the proceedings initiated under section 147. The Third Member concurred with the Judicial Member on key issues, leading to a dismissal of the Revenue's appeal and partial allowance of the assessee's cross-objection.
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