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TMI Blog1999 (12) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,036 (v) Shri Shanker Lal 1,874 (vi) Shri Devi Lal 2,274 (vii) Shri Khemraj 2,414 ------- 26,616 ------- (5) That the learned lower authorities erred in holding that the initial credits in the account of the said persons are ingenuine and remain unexplained." 2. Shri N.M. Ranka, Senior Advocate assisted by Shri R.K. Yadav appeared on behalf of the assessee. 3. Shri Ranka submitted that addition made in the declared trading results by the AO and confirmed by the CIT(A) is invalid and unjustified. The assessee is a dealer of fans, TVs. sewing machines and numerous other items. Since the assessee is dealing in large number of items it is practically impossible for them to maintain day-to-day stock register. The AO has made an addition of Rs. 64,532 in the declared trading results simply because the assessee has not maintained stock register and there is some fall in the GP rate earned by the assessee in the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee at 10.3 per cent. The assessee has engaged a Mistri in his shop for carrying out repairs but has not shown any income by way of repairing charges except Rs. 1,000 received towards repair. The AO was, therefore, fully justified in invoking proviso to s. 145(1) and applying GP rate of 11 per cent on sales declared by the assessee. He strongly supported the order of the CIT(A). 5. We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the Departmental authorities. 6. The AO on p. 2 of the assessment order has observed that major sales were that of TV amounting to Rs. 10,59,823 in respect of which quantitative details are available and the argument of the assessee that GP on sale of TV was only 5 per cent has also been incorporated. In fact it may be relevant to reproduce here the relevant lines appearing on p. 2 of the assessment order: "In the previous year the assessee disclosed GP of Rs. 1,31,527 on sales of Rs. 12,80,639 which comes to 10.3 per cent. The profit shown this year is apparently low. It was stated that the major sales of Rs. 10,59,823 is made of TV in which quantitative details ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained deposit. The interest allowed to Shri Ramesh Chandra could not, therefore, be disallowed. He also drew our attention to the copy of account of Shri Ramesh Chandra submitted on p. 4 of paper-book. This account shows that the loan of Rs. 54,550 outstanding as on 1st April, 1989 increased to Rs. 60,980 as on 31st March, 1990, which includes further interest credited on 31st March, 1990, amounting to Rs. 6,530. Out of the credit balance of Rs. 60,980 as on 31st March, 1990, the loan to the extent of Rs. 30,000 was repaid by cheque No. 0849343 dt. 30th March, 1991. A further interest was credited on 31st March, 1991, to the tune of Rs. 7,320. This left a credit balance of Rs. 38,300 as on 31st March, 1991. The assessee repaid Rs. 25,000 by cheque No. 086705 dt. 20th April, 1991 and balance amount was repaid along with interest by cheque No. 0875593, dt. 30th March, 1992 for Rs. 14,900. The amount of interest of Rs. 1,600 was credited on 31st March, 1992. The account was thus squared up on 31st March, 1992. The Bench required the learned counsel to state whether the fact of repayment of the loans by cheque in the subsequent years, was brought to the notice of the AO or not. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e name of his mother. He further mentioned that after partition nothing was payable by the assessee to him and his family. Shri Harish Chandra in his statement stated that financial condition of Shri Harish Chandra and his two brothers is weak and had there been any deposit to the extent of Rs. 1,65,000 as claimed by the assessee, they could have established business in the Rana Sangha Market Public Shops. Even at the time of death of his father, Shri Manna Lal, expenditure was partly managed by their brother-in-law of Nathdwara and Bhilwara and the loan of Rs. 12,000 taken on that occasion is being repaid by Shri Ramesh Chandra and Shri Harish Chandra. Shri Harish Chandra clearly stated that the assessee himself is crediting money in the name of his close relatives and is charging interest thereon without the knowledge of the creditors. Shri Ranka submitted that no such statement of Shri Harish Chandra was recorded in the presence of the assessee nor any copy thereof was supplied to the assessee. Shri Harish Chandra was never produced before the assessee for cross-examination by them. Hence, no reliance can be placed on his statement recorded behind the back of the assessee. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited amount in the account of such close relatives merely with a view to claim higher interest expenditure in all the subsequent years. He thus strongly supported the order of the CIT(A). 9. We have carefully considered the submissions- made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. The disallowance of interest to the seven creditors, who are said to be close relatives of the assessee is mainly based on the statement of Shri Harish Chandra recorded by the AO. It is true that the statement of Shri Harish Chandra was recorded behind the back of the assessee and before placing reliance thereon the AO ought to have supplied copy of that statement to the assessee and AO should have also produced Shri Harish Chandra for cross-examination by the assessee. This has not been done by the AO in the present case. However, the failure on the part of the AO to supply a copy of the statement of Shri Harish Chandra or the failure to produce Shri Harish Chandra for cross-examination by the assessee cannot automatically lead to cancellation of disallowance of interest on the facts of the present case. Shri Harish Chandra who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following points: (a) He must obtain the original cheques by which the loan of these seven creditors is claimed to have been repaid in the subsequent years from the concerned bank and examine whether such loans were repaid by a/c payee cheques in favour of the respective depositors or the amount of repayment was withdrawn by a bearer cheque. In case the repayments have been made by a/c payee cheques to the respective depositors, the genuineness of all these credits should be accepted by the AO without any further inquiry and investigation particularly in view of the fact that all these loans are old loans and interest thereon has been allowed in the past. (b) However, in case the loans have been repaid otherwise than by a/c payee cheque then he should record the statement of all the depositors. This may enable the AO to ascertain the truth whether the loan a/c credit balance in the account of the seven depositors in fact belong to the respective depositors or the amount had directly or indirectly flown back in favour of the assessee. (c) The AO will supply the copies of statements of all the depositors to the assessee and/or will record the statement of these depositors in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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