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TMI Blog2008 (10) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,425 made on account of difference in opening balance in the account of Kirloskar Brothers for the detailed reasons discussed in the assessment order. (5) The learned CIT(A) has erred in law and on facts in deleting addition of Rs. 4,76,600 made on account of unexplained credits/deposits under section 68 for the detailed reasons discussed in the assessment order. (6) The learned CIT(A) has erred in law and facts in deleting addition of Rs. 46,000 made on account of unexplained agricultural income considering arbitrary explanation given by the assessee during appeal while no such explanation made before the Assessing Officer and the addition was made for the detailed reasons discussed in the assessment order. (7) The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date, the appeal is finally heard for disposal." 2. The relevant facts are that the assessee who is engaged in the business of Pumps, pipe and pump spares and oil, in the year under consideration had returned an income of Rs. 1,02,432. The Assessing Officer required the assessee to produce various details and on a perusal of the documents placed before him observed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein have not been discussed in the impugned order. In the absence of maintaining complete vouchers, the Assessing Officer cannot be said to have proceeded erroneously. However, with regard to non-maintenance of stock register, the books of account in these peculiar facts cannot be rejected. A perusal of the impugned order shows that the CIT(A) has taken into consideration the fact that the Assessing Officer has estimated the sales at Rs. 9 lakhs whereas at page 3 of the assessment order shows that the sales have been estimated at Rs. 7 lakhs. The CIT(A), accordingly, shall give a correct finding on facts and deal with the issue of incompleteness of the vouchers qua the pump spares and expenses incurred by the assessee. Needless to say that the assessee shall be afforded an opportunity of being heard. 6. The next issue agitated by the revenue pertains to the disallowance of interest made under section 40A(2)(c) of the Act of Rs. 17,970 by the Assessing Officer. 7. The relevant facts of the case are that the Assessing Officer found that the assessee has paid interest to the following parties:- Shri Rakesh Makhija 15% p.a. Santosh Rani Makhija 17% p.a. Shiv Devi Makhija ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer under section 69 of the Act. The Assessing Officer took into consideration the fact that as per the books of account in the name of Kirloskar Brothers an amount of Rs. 15,719 was mentioned whereas the Kirloskar Brothers had shown the amount of Rs. 19,061 in the bill. Aggrieved by this, the assessee is in appeal before the CIT(A) submitted that the fact and arguments had not been considered by the CIT(A). It was submitted that the same pertained to purchase of pump set vide bill No. 8121, dated 21-4-2000 at Rs. 19,061. It was duly entered in the books of account as on 26-4-2000. The company issued a credit note No. 8019, dated 30-4-2000 of Rs. 3,342 against the bill, as such, in the accounts of Kirloskar Brothers as Rs. 15,719 (19,061-3,342) was mentioned. Accordingly, it was contended there was no difference in the accounts. Accepting the arguments of the assessee, the addition made was deleted by the CIT(A). 15. Aggrieved by this, the revenue is in appeal before the Tribunal. 16. Learned D.R. places reliance upon the assessment order. 17. Learned A.R., on the other hand, contended that the difference has adequately been explained before the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we are of the view that in the circumstances, it would be appropriate to restore the issue back to the CIT(A) with the direction to decide the issue by way of a speaking order and if need be obtain the remand report from the Assessing Officer and decide the issue in accordance with law after giving the assessee an opportunity of being heard. 23. The next issue agitated by the revenue pertained to the deletion of the amount of Rs. 4,76,600 which was added by the CIT(A) as deposits from farmers. A perusal of the assessment order shows that the Assessing Officer with regard to the said amount disregarded the explanation of the assessee that he had no need for the said fund since he had adequate amount in its books of account and its stock. The Assessing Officer did not accept the explanation in view of the fact that assessee's bank balance as on 31-3-2001 was only Rs. 16,258. As such, he was of the view that the said amount of Rs. 4,76,500 has definitely been used by the assessee and the introduction of the said fund as such was considered to be on account of the assessee's financial needs. Accordingly, he was of the view that the assessee has introduced his own funds. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he source of money, identity o~ the depositors and the genuineness of the transactions. From the assessment order, it is clear that the action of the Assessing Officer is based basically on suspicion/presumption which cannot be a basis for such transaction. In Dhakeshwari Cotton Mills Limited v. CIT 26 ITR 775, the Supreme Court has clearly held that the Assessing Officer is not entitled to make pure guess and make an assessment without reference to any evidence. Further in CIT v. Metachem Industries [2000] 28 ITC 437, the Hon'ble M.P. High Court has held that if the Department has examined the creditor and the creditor has accepted to have advanced the amount to the appellant, there is no reason of making any addition in the hands of the appellant. The Court further held that in case the Department is not satisfied, it is for the Department to initiate proceedings in the hands of the creditor. In view of the decisions and in the facts and circumstances of the case, I am of the opinion that the addition of Rs. 4,76,600 is not sustainable. The addition is, accordingly, deleted." 26. Learned D.R. places reliance upon the assessment order on the basis of which it was his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately these depositors i.e. the farmers were sold the pumps by the assessee and other related issues discussed above. The applicability of the judgment of the jurisdictional High Court in the case of CIT v. Metachem Industries [2000] 245 ITR 160 (MP) taken into consideration by the CIT(A) will arise only after the facts are marshalled. As such, facts need examination especially since the other aspects i.e. utilisation of the funds by the assessee for its own business despite the fact that sufficient stock was available with them has been left unaddressed by the CIT(A). As such, the necessity to obtain the advances has been doubted by the Assessing Officer which issue as observed in the earlier apart of this order has not been addressed by the CIT(A). Accordingly, it is considered appropriate in the interests of justice to restore the issue back to the file of the CIT(A) to decide the issue in accordance with law after affording the assessee an opportunity of being heard in the light of the direction given addressing the findings of facts recorded by the Assessing Officer. 29. The next issue addressed by the revenue is the addition of Rs. 46,000 made by the Assessing Officer. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him. 33. Learned A.R. relies upon the impugned order. 34. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we are of the view that in the peculiar facts and circumstances of the case, it would be appropriate to restore the issue back to the file of the CIT(A) with the direction to obtain a remand report from the Assessing Officer in order to afford an opportunity to the Assessing Officer to consider the material taken into consideration by the CIT(A). The learned CIT(A) thereafter shall decide the issue considering the remand report of the Assessing Officer and if need be after affording an opportunity to the Assessing Officer if he so desires. Accordingly, for the reasons given hereinabove, ground No. 6 raised by the revenue is allowed for statistical purposes. 35. In the result, appeal of the revenue is partly allowed for statistical purposes. Per B.R. Jain, Accountant Member.-After careful perusal of proposed order dated 10-9-2007, written by ld. Judicial Member, I am unable to agree with the decision reached by her in ground No. 5 in revenue's appeal. I, therefore, proceed to write my separate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws with the judgments rendered by Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 and jurisdictional High Court judgment in the case of Metachem Industries. Accordingly, taking facts and circumstances of the case and these judgments into consideration, he held that the addition is not sustainable. 4. Under the peculiar facts, I find no reason to interfere with the conclusion reached by ld. CIT (Appeals) in deleting the addition of Rs. 4,76,000 made under section 68 of the Act. There is no reference to any material or evidence on the basis of which Assessing Officer could say that the amount of deposit aggregating to Rs. 4,76,000 was assessee's own money credited in the name of various farmers. These farmers have admitted in their statements before the Assessing Officer that the money deposited was their own money for the purpose of supply of pumps to them. The Assessing Officer has, however, stated that the assessee first deposited his own money and later on when these depositors needed the delivery of "pumps" the full sale consideration was taken from them at the time of making delivery of goods to them. He, however, had no basis or material on record to say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of money in that manner, the sales of his goods stood fully assured. The advance money so received thus constituted a trade deposit in the hands of the assessee and as such, the provisions of section 68 were not applicable on these trade deposits. This view finds support from the ratio of judgment rendered by Allahabad High Court in the case of CIT v. Bhital Das Modi [2005] 276 ITR 517. On this premise also, the conclusion reached by the ld. CIT (Appeals) to delete the addition, is to be upheld. 6. However, testing the correctness of reasoning taken by the learned CIT (Appeals) that the case made out by the Assessing Officer has no basis or material and its foundation is rested on suspicion only is a well reasoned decision under the peculiar fact that the revenue in support of grounds in appeal before us did not bring any material or evidence on record to show that the view entertained by the Assessing Officer could be upheld. For arguments' sake, even if it can be accepted that the provisions of section 68 of the Act can be invoked for the deposits of Rs. 4,76,000, found credited in the books of account, then also as found in the earlier part of this order, the initial burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,76,500 in the books of the assessee. When called upon to explain, the assessee submitted that these represented advances by the farmers for purchase of pumps, which were adjusted when the pumps were subsequently sold to them. The Assessing Officer did not believe this explanation and asked the assessee to produce the farmers (creditors) in whose account there was deposit of more than Rs. 20,000. All the creditors were produced and they were examined/cross-examined by the Assessing Officer. The assessee tried to explain that it had no necessity of funds to introduce cash credits. This contention was not accepted by the Assessing Officer as he found that closing balance with the assessee as on 31-3-2001 was only Rs. 16,258 and therefore, the assessee had used Rs. 4,76,500 in business when there was shortage of money with the assessee. All the same he held that money used by the assessee was his own money introduced to save interest on overdraft. Assessing Officer further observed that agriculturists, who made statement before him, must have been known to the assessee. The Assessing Officer thought that the following three points were worth consideration: (i) Whether assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the Assessing Officer was based basically on suspicion/presumption which could not be a basis for such addition. In Dhakeswari Cotton Mills Ltd.'s case, the Supreme Court has clearly held that the Assessing Officer is not entitled to make pure guess and make an assessment without reference to any evidence. Further in Metachem Industries' case, the Hon'ble M.P. High Court has held that if the Deptt. has examined the creditor and the creditor has accepted to have advanced the amount to the appellant, there was no reason of making any addition in the hands of the appellant. The Court further held that in case the Department was not satisfied, it was for the Department to initiate proceedings in the hands of the creditor. In view of these decisions and in the facts and circumstances of the case, the ld. CIT(A) was of the opinion that the addition of Rs. 4,76,600 was not sustainable. The addition was, accordingly, deleted. 4. The relevant ground No. 5 raised by the revenue on above deletion along with ground No. 6 are as under: "5. The ld. CIT(A) has erred, in law and facts, in deleting addition of Rs. 4,76,600 made on account of unexplained credits/deposits under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is not entitled to make pure guess and make an assessment without reference to any evidence. Further in CIT v. Metachem Industries [2000] 28 ITC 437, the Hon'ble M.P. High Court has held that if the Deptt. has examined the creditor and the creditor has accepted to have advanced the amount to the appellant, there is no reason of making any addition in the hands of the appellant. The Court further held that in case the Department is not satisfied, it is for the Department to initiate proceedings in the hands of the creditor. In view of these decisions and in the facts and circumstances of the case, I am of the opinion that the addition of Rs. 4,76,600 is not sustainable. The addition is, accordingly, deleted." 5.1 The learned Judicial Member further noted the contention of the learned Departmental Representative, particularly the objection that specific finding has not been given by learned CIT (Appeals) addressing the issue that funds have been introduced by the assessee to fulfil his business requirement in the garb of advances from agriculturists. If pumps were available in stock, where was the need to receive advances as the assessee could have sold it outright? It was furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to Rs. 4,76,500 was assessee's own money credited in the name of various farmers. He further observed that farmers have admitted in their statement before the Assessing Officer that money deposited was their own money for purposes of supply of pump to them. The learned Accountant Member further held that Assessing Officer had no basis to hold that the assessee first deposited his own money and later on when these depositors needed the delivery of pump, the full sale consideration was taken at the time of delivery of goods to them. The learned Accountant Member further held that assessee had discharged the initial onus that lay upon him to satisfy that amount credited in books was advance deposited by agriculturists for supply of pumps to them. The learned Accountant Member further observed that the sale of pumps to the agriculturists stood admitted by the Assessing Officer himself. The learned Accountant Member was unable to sustain the order of the Assessing Officer which was based on suspicion. The A.M. further observed that Assessing Officer has failed to prove inferences drawn by him in the assessment order that the amount deposited was assessee's own money, particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have also considered facts and circumstances of the case and the material on record. 11. The relevant observations of the Assessing Officer in the assessment order have already been noted. The assessee is dealing in Kirloskar pumps. The case of the assessee is that a sum of Rs. 4,76,500 was deposited by farmers for booking pumps which were subsequently sold to them. The Assessing Officer wanted the assessee to produce these farmers for cross-examination. The farmers were produced and their statement was recorded on oath. There is no dispute that these farmers confirmed on oath that they had given advance to the assessee. Now when assessee had produced farmers for examination or cross-examination of the Assessing Officer, it was necessary for the Assessing Officer to put his doubts to them, ask for their explanation and then decide the matter on the basis of material available on record. Instead of discussing the statements and the principles applicable under section 68 of the Act, the Assessing Officer recorded a finding that money introduced in books belonged to the assessee and farmers were trying to accommodate the assessee. This finding, as rightly observed by learned A.M, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the capacity or identity of the depositor or source of deposit made by them. Without discussing this relevant material, the Assessing Officer came to the conclusion that it was assessee's money deposited in the name of the farmers. This conclusion, as noted earlier, is not based on any material, nor the learned Judicial Member has pointed to any material, except stating some facts which as per material on record, are not correct. 12.1 Regarding availability of stock and delivery of pumps to farmers, the learned A.M. has rightly considered the order of the CIT (Appeals). The Assessing Officer, as noted earlier, had admitted that pumps were delivered after taking full amount from the same farmers. Who has raised the question that pumps were delivered to a person different from the farmers who deposited the amount? How the above question is arising in this case is absolutely not clear from record? It is no doubt true that the Tribunal has very wide powers. But such powers are to be exercised judicially and on the basis of material available on record. It is not permissible to misread facts and then order a remand for the sake of remand. The Assessing Officer cannot be permitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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