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TMI Blog2007 (4) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... t the funds from sale of goods are available with the assessee for the subsequent purchases and only the peak of the purchases are to be considered for addition. 3. The learned Commissioner of Income-tax (Appeals) ought to have noted that the case of Assessing Officer is that the assessee had made the payments in respect of credit purchases from out of unaccounted income which should be brought to tax. He ought to have seen that the Assessing Officer did not doubt the availability of fund but found that the assessee has unaccounted cash to pay off the creditors and hence it constituted unaccounted income. 4. The learned Commissioner of Income-tax (Appeals) should have noticed that the necessity to work at the peak credit comes only when additions are made in respect of unexplained cash credits. Where source is suspected, which is not the case here and hence resort to peak credit is unwarranted in the present case." As far as for the assessment year 2002-03 is concerned, the revenue has taken the following two effective grounds :- "2. The learned Commissioner of Income-tax (Appeals) erred in holding that the addition on account of bogus credits was without any material foundatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of herbal items by making the cash payment on the date of purchase but at the same time sustaining the addition made by the Assessing Officer in the assessment year 1997-98 at Rs. 3,30,670 in place of Rs. 4,92,943 and deleting the entire addition for the assessment years 1998-99, 1999-2000, 2000-01 and 2002-03. 6. As far as the assessee's appeals are concerned in respect of the assessment year 1997-98, the assessee has challenged the sustenance of addition made by the CIT (Appeals) and as far as the assessment years 1998-99 to 2000-01 are concerned, the assessee has challenged the findings of the first appellate authority that the Assessing Officer has rightly held that the assessee has made the cash purchases outside the books relying on the assessee's own bought note and therefore the requirements of section 69C were complied with. 7. After analyzing the issues before us, we give brief facts, which are common in all the appeals as under : 7.1 The assessee is a firm which is engaged in the business of trading in essential oils, synthetic perfumes, herbal extracts used by soap manufacturers, etc. The DDI (Investigation), Ernakulam conducted survey under section 133A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and complete addresses of those parties were not available. The assessee contended that all the transactions were genuine transactions and as per the trade practices in this business, it was common method that the purchases of the said material were made from up country sellers on the basis of bought notes and payments were made subsequently. The Assessing Officer was not satisfied with the explanation of the assessee. The Assessing Officer was of the opinion that as the assessee failed to prove fully identifiable postal addresses of those parties that means the assessee has failed to prove the identity of the creditors. The Assessing Officer placed his full reliance on the bought notes and came to the conclusion that though the purchases are shown on credit basis, in fact, the payments in respect of those purchases were made at the time of purchases itself. The Assessing Officer also noted that the alleged payments to those suppliers were made by the assessee even after a period of more than 10 months. The Assessing Officer was of the opinion that it is very difficult to believe that a one time supplier would make a sale on credit basis for such a long period. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant is that of M. Durai Raj v. CIT [1972] 83 ITR 484. In this decision, the Kerala High Court held that the absence of particulars of the addresses of the customers in the sales will not affect the correctness of the appellant's accounts. In the case of the appellant, the issue is not with regard to the sales but with regarded to the purchases. Further, there is a discrepancy between the purchase vouchers and the books of account. In the facts of the case, therefore, the said decision is distinguishable. Another decision relied on by the appellant is that in 75 ITR 33 in the case of R.B. Jessaram Fatehchand (Sugar Department) v. CIT (Bom.), in this particular case, the Kerala High Court held that the books of account cannot be rejected merely there was low rate of profits or because of the absence of particulars of the addresses of the customers for verification of the sales or non-maintenance of stock book on the basis of weight. This decision is also distinguishable for the same reasons discussed above. Therefore, the decisions relied on by the appellant against the additions under section 69C are not tenable. (iv)The appellant has also relied on the order of the ITAT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchase should be considered for addition. The CIT (Appeals) worked out the peak of purchase for the different assessment years as under : S.No. Assessment Peak of purchases year 1. 1997-98 Rs. 3,30,670 2. 1998-99 Rs. 1,35,540 3. 1999-2000 Rs. 1,54,110 4. 2000-01 Rs. 2,04,050 The CIT (Appeals) sustained the peak of purchases of Rs. 3,30,670 in the assessment year 1997-98 under section 69C; but as far as for the assessment years 1998-99 to 2000-01 are concerned, he was of the opinion that the peaks for these assessment years are lower and hence there is no scope for addition in those years and thus deleted the additions. The reasonings of the above finding of the CIT (Appeals) are as under : "The suppliers of herbal oil approach the appellant with goods. The suppliers are located at far away places from the business premises of the appellant. The suppliers are generally not able to keep credit balance with the appellant. The supplies of goods are seasonal. The bought notes maintained by the appellant show that the suppliers have been paid in cash in full. The books of account of the appellant show that there are credit balances in the names of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue and the learned senior counsel, Shri V. Ramachandran, for the assessee. The argument of the learned departmental representative can be summarized as under : In respect of the addition on account of purchase transactions relating to the herbal items, it was argued that most of the suppliers are Tribunal having insignificant source of income and it cannot be believed that they will go back without taking the money in respect of the sale of the herbal product which are forest product. It is further argued that on the preponderance of the probabilities no such type of commercial transaction can be presumed. The entire purchases are recorded on the basis of bought notes of the assessee and on the bought note the seller has acknowledged the payment on the date of the sale. In respect of the applying the theory of the peak credit by the CIT (Appeals) in the assessment years 1997-98 to 2000-01, the learned departmental representative argued that the said method for giving the relief to the assessee is totally misplaced as the CIT (Appeals) has himself concurred with the findings of the Assessing Officer that the assessee has made the payment to the sellers on the date of supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has filed a paper book containing the copies of the bought notes. In this case it is not disputed that the assessee is engaged in the business of trading essential oils, synthetic perfumes, herbal extracts used by soap manufacturers etc. For that purpose, the assessee is required to purchase some herbal and forest product. There was a survey action in the business premises of the assessee and after the survey action, the Assessing Officer initiated proceedings under section 147 of the Act for the assessment years 1997-98 and 1998-99 and in respect of the assessment years 1999-2000, 2000-01 and 2002-03 regular assessments are made under section 143(3) of the Act. It was noticed by the Assessing Officer that suppliers of the assessee-firm were individuals and they were from the remote and interior places and only the assessee showed the name and place of the suppliers. Moreover, the purchases were only supported by the assessee's own bought notes. The Assessing Officer place reliance on the bought notes, which are in the printed form, and on which the suppliers put their initials only. The grievance of the Assessing Officer is that though the assessee has made the cash pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." 13. It is not the case of the Assessing Officer that cash payments shown by the assessee in the books of account and assessee failed to give any explanation in respect of the source. From the plain reading of section 69C, it is the normal rule of evidence and presumption that where the assessee in fact incurred certain expenditure and is not able to offers any satisfactory explanations, then the Assessing Officer can draw the inference that the expenditure of the unaccounted part thereof must have been made out of the undisclosed income of the previous year. Moreove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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