9911796707
TMI Blog1997 (3) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... judication afresh. Both the parties are aggrieved and, therefore, are in appeal before us. 3. The first issue raised by the assessee in its appeal is with regard to addition of Rs. 2,56,905 on account of outstanding liabilities in the names of three parties for purchasing coal, namely, (i) Sharda Coal Company, (ii) Ma Durga Coal Company and (iii) Varun Coal Company, all of Varanasi with amounts at Rs. 2,12,214; Rs. 22,065 and Rs. 22,626 respectively or Rs. 2,56,905. The AO added these amounts as the assessee was not found in possession of any evidence in the form of confirmation by these parties. He also noted that the claim of the assessee that these accounts were settled subsequently by sale of coal dust to these parties, was unsubstantiated and was an afterthought. He added these amounts to assessee's income. The learned CIT(A) confirmed the addition primarily on the ground that the assessee had surrendered the amount. 3.1 Shri O.P. Sapra, the learned Authorised Representative for the appellant submitted that the surrender of the above amount in terms of letter, dt. 22nd March, 1991, was conditional to buy peace and to avoid litigation, as also subject to no penalty under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also sale of coal-dust in the subsequent years appears to have been shown on higher rates than even the rates of coal. In reply, Shri Sapra submitted that the sale of coal-dust was at the then prevailing market rate and inclusive of freight payable which was quite substantial. 3.4 The learned representatives are heard and relevant record seen. In our considered view the addition of Rs. 2,56,905 was not called for. It is nobody's case that coal is not required by the appellant in its business. The purchases involved also stand recorded in day purchase book maintained in the normal course of assessee's business recording purchase of various raw material. The consumption of coal vis-a-vis finished goods production is admittedly better as compared to the immediately preceding assessment year which stands accepted by the Revenue.Saleof coal-dust by which these accounts were squared up also stands recorded by the appellant in its books of accounts subsequently, which stand accepted by the Revenue. Therefore, the mere fact that the assessee had surrendered the amount could not be held out against the assessee when such surrender was not accepted. We, therefore, find enough merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no evidence regarding services rendered by these three parties and while rest of the claim was allowed, the same as relating to these three parties was rightly disallowed. He submitted that no evidence is placed on record with regard to names of the parties to whom sales stood made on which the three parties became entitled to the commission. 5.2 Having heard the learned representative of both the parties, we do not find any merit in the submission made by Shri Sapra and, therefore, agreeing with the learned Sr. Departmental Representative, we confirm the disallowance. 6. The next grievance is against additions sustained by the learned CIT(A) on account of suppressed sales, bogus liabilities and addition under s. 68 of the IT Act. In turn, the Revenue is in appeal against relief allowed by the learned CIT(A) as under: . Addition made by AO Sustained by CIT(A) Relief allowed by CIT(A) against which Revenue is in appeal . Rs Rs Rs (a) Suppressed sales 1,73,525 77,567 95,958 (b) Bogus liabilities 3,30,459 3,20,909 9,550 (c) Addition under s. 68 for unexplained cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of Laxmi Glass against 'C' Form No. 727838. He pointed out that the AO was requested to summon this party under s. 131 of the Act but it was not done. Under these circumstances he submitted having failed to respond to assessee's request no adverse inference could be drawn against the assessee as held by Allahabad High Court in (1962) 46 ITR 561 (sic) and E.M.C. (Works) (P) Ltd. vs. ITO (1963) 49 ITR 650 (All). He further submitted that this party already had an account with the assessee with an opening balance of Rs. 10,000 as on21st Oct., 1987. Under these circumstances he submitted the AO was not justified in making addition of Rs. 20,217 as suppression of sale and Rs. 7,629 being further credit liability as non-genuine. The learned Departmental Representative supported the view taken by the learned CIT(A). Having heard the learned representatives of the parties, as also after going through the relevant record, we are of the view that the addition made is not justified. Bill No. 86, dt.7th March, 1988, for Rs. 18,462 is against 'C' form and is duly recorded in the books of the assessee. The AO had obtained copy of account of the appellant from Laxmi Glass behind the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It was, thus, urged that there was no occasion for the addition made. On the other hand, the learned Departmental Representative supported the order of the CIT(A). Heard and relevant record seen. We are inclined to accept the submission made by the assessee when we do not find any evidence of any sale made by the assessee to Hissar party as not recorded by the assessee in its books of account. The Hissar party was not confronted by the AO even when a specific request was made. Therefore, we delete addition of Rs. 20,640. Om Glass Store, Lucknow Rs. 22,000: 6.7 This was added by the AO there being no evidence in support of the amount received from this party as advance received and carried forward. The learned CIT(A) confirmed. No material exists on record neither any such material is placed before us compelling us to interfere with the finding of the learned CIT(A). The addition of Rs. 22,000 is, thus, confirmed. Madan Co.: 6.8 While the assessee's books showed credit balance of Rs. 5,473 in its books of accounts in the name of this party, the corresponding balance was reflected at Rs. 849.60 by Madan Co. The AO added Rs. 5,473 and this was confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,380 is, therefore, deleted. Madan Glass Store, Meerut Rs. 18,886: 6.10 Here also the AO obtained copy of assessee's account in the books ofMeerutparty, which did not reflect any balance as on31st March, 1989, as against balance carried forward by the assessee at Rs. 10,000. The AO also examined that sale through bill No. 19, dt.29th Nov., 1987, for Rs. 18,886 had not been recorded in the books of the assessee. He did not accept the explanation that sale vide bill No. 19 was of Rs. 10,123.60 paise on 28th Nov., 1987, which was duly debited in the account of Meerut party. The AO also did not accede to the request of the assessee made on9th March, 1992, that the party be summoned. He has added Rs. 10,123 received by the assessee on5th Dec., 1987, in cash since the assessee failed to prove the genuineness thereof and has further added an amount of Rs. 8,763 being the difference between the sale of Rs. 18,886 shown byMeerutparty vide bill No. 19, dt.29th Nov., 1987, and sale of Rs. 10,123.60 shown by the assessee. It is the contention of the learned Authorised Representative that bill No. 19, dt.28th Nov., 1987, for Rs. 10,123 is duly accounted for and the AO himself havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not in dispute that copy of assessee's account in the books of Nabha party had been obtained behind the back of the assessee. Thus, the addition of Rs. 18,810 is deleted. Surinder Glass Crockery House, Jullandhar: 6.13 On obtaining copy of assessee's account in the books of Jullandhar party, the AO found nil balance, whereas assessee's account disclosed credit balance of Rs. 25,469. This was added by the AO. On appeal the learned CIT(A) upheld the addition of Rs. 25,000 only when he noted that advance of Rs. 25,000 received on2nd June, 1988, was not satisfactorily explained. The learned Authorised Representative invited our attention to p. 22 of the paper-book and submitted that the AO had nowhere observed that the amounts in this account by the assessee, which were all by drafts/cheques, except an amount of Rs. 5,613 in cash on 5th Dec., 1987, had not been actually remitted by the Jallandhar party or any of them did not find place in assessee's account as obtained from Jallandhar party. He submitted that to doubt the genuineness of Rs. 25,000, which was also received by demand draft was not justified when there have been a large number of transactions between the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 192 would be considered in the asst. yr. 1988-89 but added Rs. 22,163 on account of suppressed sales (bill No. 107, dt.13th Feb., 1988). The CIT(A) sustained the addition. The learned Authorised Representative submitted that bill No. 107 is dt.12th Feb., 1988, for Rs. 12,389 for the goods supplied to above party against Form 'C' No. 165499 duly recorded in the sales day book and is also debited in the account of the party and this is not controverted by the Revenue. On the other hand, the learned Departmental Representative supported the order of the learned CIT(A). Both the parties are heard and relevant record seen. Since the bill No. 107 is duly accounted for by the assessee in its books, we do not find any justification for the addition made. It is deleted. Relief Rs. 22,163. Mangal Singh Son, Amritsar : 6.16 The AO obtained assessee's account fromAmritsarparty which revealed that amount of Rs. 23,636 credited by the assessee by draft, dt.2nd Dec., 1987, did not appear in the said account becauseAmritsarparty had recorded the purchases of goods through Bill No. 21, dt.24th Nov., 1987, for Rs. 23,636 but there was no remittance recorded by that party credited by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. He treated a sum of Rs. 15,191 (wrongly mentioned as Rs. 1,51,191 as suppressed sale which could also take care of credit liability of Rs. 10,000. He rejected assessee's request for summoning Nakodar party. The learned CIT(A) upheld the addition. The learned Authorised Representative submitted that the AO himself concedes that sales of Rs. 11,375 and Rs. 19,751 effected by the assessee against Nakodar party, against which that party had remitted the identical amounts vide separate drafts which are duly credited in the account of Nakodar party though Nakodar party has not accounted for these transactions in its books. He submitted that it was incorrect on the part of the Revenue to make the addition of Rs. 15,191 shown by Nakodar party as purchases from the assessee without confronting Nakodar party. He submitted that the amount of Rs. 10,000 was also received by way of draft and is recorded in the account of Nakodar party in the books of the assessee like other two drafts which have been accepted and unless Nakodar party was confronted on credence should have been given to the copy of account of the assessee in their books of accounts. Learned representatives are heard and relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party as requested by the assessee, in our view, committed an error and, therefore, wrongly made the impugned addition. Therefore, the learned CIT(A) was equally wrong in sustaining the addition of Rs. 12,389. We delete this amount. Bansal Gift House, Muktsar: 6.19 Here also copy of assessee's account in the books of this party, as obtained, revealed that sales of Rs. 22,759 vide bill No. 93, dt.5th Feb., 1988, has not been recorded, though the payment made by that party to the assessee through two drafts of Rs. 12,000 and Rs. 10,759 or Rs. 22,759 have been duly recorded. The AO, thus, added the amount of Rs. 22,759 as suppressed sale. This was confirmed by the CIT(A). Here again the request of the assessee for summoning the party was rejected. Having heard the learned representatives as also after going through the relevant copy of account at p. 41 of the paper-book, we note that sale made through bill No. 93, dt.5th Feb., 1988, was for Rs. 12,359 against 'C' form for which payment had been received on17th Feb., 1988. The assessee received a further sum of Rs. 10,759 by way of cheque, dt.25th Feb., 1988, from the Muktsar party and the same has been carried forward. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments advanced by Shri Sapra as convincing and, therefore, we confirm these additions since the amounts are received by way of cash. 6.23 Regarding Naresh Crockery, we find that against sale of goods vide bill, dt.5th Dec., 1987, and16th Jan., 1988, the assessee had received the amounts from Naresh Crockery which stood duly credited in this account. On28th Feb., 1989, the assessee received a demand draft for Rs. 17,000 and credited this amount in the account of this party, which has been carried forward. Refusal by Naresh Crockery to receive the registered letter could not be held out against the assessee when the sales made to this very party and amounts received thereagainst on earlier occasion stand accepted by the Revenue itself. We delete addition of Rs. 17,000. Adarsh Crockery, Allahabad : 6.24 There is a credit balance of RS. 21,999 in the account of this party in the books of the assessee as carried forward. This was added by the AO since registered letters sent to this party was received back with the remark 'incomplete address'. The assessee was informed accordingly but did not file any satisfactory explanation. The addition was confirmed by the CIT(A). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief of Rs. 45,829 (Rs. 20,469 plus Rs. 25,360). Godawari Bangle, Ahmadpur: 6.30 The assessee claimed to have received Rs. 3 lakhs in cash in the account of the above party in two lots of Rs. 1,50,000 each on1st Feb., 1988, and2nd Feb., 1988. This was added by the AO for lack of proof under s. 68 of the IT Act. In appeal the learned CIT(A) deleted an amount of Rs. 1,92,240 being the sales made by the appellant against this account and duly taken to assessee's trading account vide bill No. 36, dt.9th March, 1988, against `C' form. He, therefore, confirmed the remaining amount of Rs. 1,07,760 being the amount carried forward. He further noted that the sales effected by the assessee to this party is not even doubted by the AO. Having heard the learned Authorised Representative, we do not find ourselves in agreement with the view canvassed by Shri Sapra that the remaining amount should also be treated as explained when admittedly there is no evidence in the form of confirmation even from this party and as such we confirm the view of the learned CIT(A) and dismiss assessee's ground of appeal relating to this amount. 6.31 For the same reasons as above we confirm the view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has also not led any evidence to explain the nature and source of this amount in a satisfactory manner. 6.36 Similar is the position with regard to addition of Rs. 1,60,360 in the account of Sanjeev Kumar ofFirozabadand, therefore, we confirm this addition also. Dinesh Kangan House: 6.37 The appellant is shown to have received cash aggregating to Rs. 6,26,174 on five different dates, against which the AO has added Rs. 3 lakhs under s. 68 on account of cash of Rs. 1,50,000 received by the appellant on 9th Feb., 1988, and again on 10th Feb., 1988. On appeal the learned CIT(A) restricted the addition to Rs. 1,09,000 being the amount carried forward and gave relief of Rs. 1,91,000 on account of sales made by the assessee to this party vide bill No. 37, dt.10th March, 1988, against 'C' form. On facts of the case we find ourselves in agreement with the view taken by the learned CIT(A) and endorse the same. For similar reason we endorse the view of the learned CIT(A) in giving relief of Rs. 1,93,500 out of addition of Rs. 3 lakhs made by the AO in the account of Khan Bangle Store, the fact and circumstances being the same as in the case of Dinesh Kangan House. 6.38 Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies of goods to this party by the assessee and further cash of Rs. 21,000 received on 28th Feb., 1989, and even thereafter stood adjusted against the sales made. We do not find any infirmity in the reasoning of the learned CIT(A) and confirm his finding. Prem Gen. Store, Gonda Rs. 22,000: 6.43 This was received by cash on8th March, 1989, and carried forward. No satisfactory evidence having been furnished by the assessee the addition was made by the AO and confirmed by the learned CIT(A). We also find no material on record justifying interference with the finding recorded by the learned CIT(A). Bhatia Beauty, Phagwara: 6.44 The AO had added Rs. 32,225 being the credit balance carried forward by the assessee in this account on the ground that the assessee had not furnished address of this party nor it had proved the genuineness of the amount. On appeal the CIT(A) deleted the addition after going through the account of the party at p. 69 of the paper-book, which indicated brought forward balance of Rs. 21,323 and further amounts credited on six different occasions, including by demand drafts/cheques and supplies effected, leaving a balance of Rs. 32,225 which represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made the following submissions: "Ground No. 33: That the AO was not justified in ignoring the written explanation, dt.9th March, 1992in which it was stated that the stocks were inflated to the tune of Rs. 44,25,849 which should be reduced from the income. The value of stock in the balance sheet has been shown at Rs. 77,08,524 while the correct value of the stocks held by it is Rs. 32,82,675. This inflation had been attempted to only reduce the genuine losses suffered by the appellant. It is, therefore, prayed that your honour will be pleased to entertain the above ground at sl. No. 33 and consider the same". 8.3 The learned CIT(A) disposed of assessee's claim in paras 18 to 19.4 at p. 31 to 33 of his order. We consider it appropriate to reproduce para 18 of the appellate order as below: "18. The additional ground was made that the stock in this year had been inflated by Rs. 44,25,849: Actual Rs. 32,82,675 was inflated to reduce genuine losses Rs. 77,08,524. AO's objections in this regard were as under: (i) The return was filed voluntarily on30th Oct., 1989, with the audit report which was certified to be true to the personal knowledge of the partner Shri SC. Goyal who sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the income of RS. 24,25,527 on account of these adjustments neither represented value of such closing stock nor there was actually any such closing stock. He submitted that mere book appreciation in value of such stocks cannot be treated as assessee's income and taxed as such, as held by the Hon'ble Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC), at p. 106. His argument plain and simple was that since appreciation in value of stock-in-trade cannot be brought to tax then the mere adjustment entries of the amounts of Rs. 24,25,527 on the last day of the accounting period without any such stocks could not be treated as assessee's income when assessee has to be taxed on its real income and not on any hypothetical income which not at all had resulted to the assessee. Advancing his submissions, he explained that for manufacture of glassware the raw material used is soda ash, silica sand and for manufacturing process coal is used as fuel. For all these items the assessee had maintained day-to-day stock/consumption register, which was produced before the Revenue authorities and no defect stand pointed out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of personal knowledge of partner, Shri SC. Goyal. The Authorised Representative submitted that nowhere the AO had pointed out that entries aggregating to Rs. 24,25,527 did not represent adjustment entries made on the last day of the accounting period. 8.8 The learned Departmental Representative while not controverting the fact that above entries were merely adjustment entries made on the last day of the accounting period, however, submitted that in case any relief was allowed it would bring down the GP rate, which was disclosed by the assessee at 15.64 per cent after carrying out the adjustment entries aggregating to Rs. 24,25,527. On a query from the Bench as to whether the AO had passed any order under s. 251 of the IT Act, it was submitted by the learned Departmental Representative that while no such order has been passed by the AO,he had declined to give any relief even after the passing of the impugned order by the learned CIT(A) to grant relief to the assessee after verification by passing an order under s. 154 on such application having been filed by the assessee with reference to a show-cause notice under s. 221 of the Act. 9. As both the parties are in appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MT against 6,390 MT in the immediately preceding year. It is nobody's case that the consumption of coal is high while it compared favourably with the immediately preceding assessment year. We also find that value of Renia and Kachra has been shown and accepted at 2,000 and 2,400 for asst. yr.1988-89. Therefore, on a cumulative consideration of all the facts we feel that the assessee is entitled to the relief; (a) of Rs. 2,90,229 on account of adjustment made in coal on 31st March, 1989; (b) Rs. 6,70,000 out of Rs. 6,74,730 on account of Renia adjusted on 31st March, 1989, keeping in view that in 1988-89 assessment year value of Renia at Rs. 2,000 was accepted out of coal consumption of 6,389.320 MT; and (c) Rs. 5,65,000 out of adjustment of Rs. 5,71,200 made on 31st March, 1989, keeping in view that in 1988-89 assessment year value of Kachra at Rs. 2,400 has been accepted. 9.3 As regards Bardana account also on the facts summarised above, we feel that value of Bardana obtained from soda ash could not be more than Rs. 15,000 or so keeping in view the value of Rs. 5,200 shown and accepted for 16,744 bags in asst. yr. 1988- 89. We agree with the learned Authorised Representative tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no wastage. It, therefore, clearly proves that in the chart filed before the CIT(A) the quantities had been mentioned through extrapolation as mentioned above. Similar is the position with regard to Renia and Kachra (Sl. Nos. 15 and 16 of the chart). It is after taking into account all these facts that we have come to the conclusion that the adjustment entries passed on31st March, 1989, were not at all in respect of any actual stocks but had been made only to inflate the gross profit and such adjustments by themselves did not represent actual income earned by the assessee. 10.1 The submission made by the learned Departmental Representative that in case any relief is allowed to the assessee out of inflation in stocks represented by adjustment entries, it would affect the gross profit rate as disclosed at 15.64 per cent as against 15.95 per cent in the immediately preceding assessment year, deserve to be taken note of. We have allowed relief of Rs. 23,65,229 on account of inflation in stocks and deducting this amount from declared gross profit of Rs. 27,92,386, the balance gross profit remains at Rs. 4,27,157. But to this we have to add the additions sustained by us aggregati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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