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TMI Blog2011 (11) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(2) and 142(1) of the Act. In the first paragraph the A.O. mentions in a routine fashion that assessee has filed the return of income accompanied with a tax audit report under section 44AB of the Act and, thereafter, assessee's representative attended from time to time and furnished the details called for. He further mention that the case was discussed with him and details were verified and kept on record. Having mentioned that all the details, as called for, were furnished, in para 1 of the assessment order he observes that assessee failed to produce books of account. He quickly adds that whatever books are maintained by the assessee, the same are rejected under section 145(3) of the I.T. Act, 1961. It is thus not clear as to whether there was a total failure to produce the books of account, whether any books were called for or some books having maintained by assessee they were incomplete and, therefore, books were rejected under section 145(3), as stated by him. After such inconsistent statements he proceeded to verify the loans taken by assessee and in paragraph 2 he furnishes the following chart: - During the year under consideration the assessee has taken new loans from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . referable to the unexplained cash credit in the name of Shri Afzal Khan Mahadik and interest component thereon. 5. Assessee contended before the learned CIT(A) that the A.O. erred in adding to the total income the unsecured loan together with interest. Explaining further, in the statement-of-facts, it was submitted the Shri Afzal Khan Mahadik has extended a short term unsecured loan to assessee. It was also stated that the creditor is a NRI and regular tax payer and hence there is no basis for making addition of the said amount as well as alleged interest component since it was an interest free short term loan wherein the question of interest income does not arise. 6. During the course of hearing the counsel appearing on behalf of assessee submitted that the A.O. sought to make an addition under section 68 of the Act in which event an addition can, at best, be contemplated with reference to current year's loan. In otherwords the loan taken in the earlier year which was reflected as opening balance in this year and the alleged interest component on the interest free loan cannot be brought to tax under section 68 of the Act. He has furnished before the learned CIT(A) confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained Cash credit of Rs.28,67,319/- the unsecured loan outstanding in the name of Mr. Afzal Mahadik. II. The learned CIT(A) has erred on facts and in law and in the circumstances of the case in admitting the new evidence of loan confirmation filed by the assessee before him without calling remand report and not taking cognizance of Assessing Officer in contravention to rule 46A." 9. At this juncture it is necessary to travel back to the order passed by the A.O. to appreciate the reasons given by him for making certain other additions which were also in dispute before us by way of cross objections filed by assessee - taking advantage of the appeal filed by Revenue. 10. Assessee's turnover of hardware items was to the tune of Rs. 1,20,59,537/- on which he has declared gross profit of Rs. 21,84,765/- which works out to 15.40% of the turnover. He declared net profit of Rs. 6,02,364/-. The trading account filed by assessee shows that the gross profit works out to 15.41%. 11. The A.O. compared the gross profit of assessee with the immediately proceeding assessment year to highlight that there was a fall in the gross profit to the extent of 7.56%. According to the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, etc. personal use cannot be ruled out. Under the circumstances the A.O. disallowed 30% of the expenditure, which works out to Rs. 5,84,756/-. 14. Aggrieved by the order of the A.O. with regard to addition of Rs. 9,15,956/-, Rs. 50,000/- (+interest), Rs. 2,26,000/- (+interest) and Rs. 5,84,956/- assessee contended before the learned CIT(A) that additions made by the A.O. are arbitrary. 15. Regarding G.P. addition it was submitted that the A.O. proceeded on a total unacceptable way of gross profit calculation overlooking the fact that any hardware item's rate cannot be consistent in every year. In particular, there was lot of fluctuation in dollar rate, which was the main reason for decrease in gross profit and added to that assessee had to sell at lower rate than the normal selling price to attract new customers and thus the A.O. was not justified in taking into consideration the gross profit of the earlier year as yardstick. 16. The learned CIT(A) observed that the assessee has not denied about non-maintenance of the day-to-day stock tally and details required for showing the trading results were also not furnished and hence the addition made by the A.O. was confirmed. 17. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an addition is called for, disallowance of 30% is on the higher side considering the circumstances of the case. The learned CIT(A) was satisfied with the submission of assessee and hence restricted the disallowance to 10% of the expenditure which works out to Rs. 1,94,918/-. 20. Though assessee did not prefer any appeal on the aforementioned additions, since Revenue has preferred an appeal, by way of a cross objection assessee challenged the order of the CIT(A) wherein it was contended that addition of Rs. 9,15,956/- referable to estimation of G.P. is not justified, addition of Rs. 2,50,000/- towards cash credit is not in accordance with law and addition of Rs. 1,94,918/- by way of adhoc disallowance deserves to be deleted. 21. The appeal filed the Revenue as well as the cross objections filed by assessee are taken up. We have heard the learned D.R. and the learned counsel appeared on behalf of the assessee and carefully perused the record. The only issue urged in Revenue's appeal is with reference to unexplained cash credit in the name of Mr. Afzal Khan Mahadik. The learned D.R. strongly relied upon the order passed by the A.O. to submit that addition of Rs. 28,69,319/- ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase it was a pure and simple case of loan taken from the Brother, a NRI, who had advanced the amount free of interest and he has sufficient sources to give the loan. Whatever material was called for were furnished before the A.O. Since the A.O. has never called for further details before making the addition, at the first available opportunity i.e. before the CIT(A) assessee furnished all the details who had verified the PAN, etc. and also took note of the fact that the creditor was an employee of Jersey Industrial Company Ltd. Doha, Qatar and in his capacity as General Manager of the said company he was drawing a basic salary of QR 40,000/- per month plus incentives since 1994. He has verified the bank account maintained with Hong Kong & Shanghai Corporation Bank Ltd. wherein the loan amounts received by assessee on several dates were reflected. He also noticed the fact that the A.O. has arbitrarily made the addition of the closing balance ignoring the fact that previous years loan cannot be added under section 68 of the Act in the year under consideration. In fact the A.O. has not preferred any appeal against the so called interest, which in itself indicate that he was aware of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministration of Revenue authorities in the eyes of the tax paying public, who are the backbone of our society since the tax paid by the public is the only source of revenue which is utilised for the welfare of the economy. Added to that, at least when the CIT(A) has corrected the wrong doing of the A.O. he had a second chance to properly apply his mind and to introspect as to whether his action is justified but he chose to challenge the deletion of addition of Rs. 28,67,319/-, which includes the loan taken in the preceding year which would certainly give undue hardship to an assessee since he has to engage a counsel to ensure proper representation to highlight the facts of the case. In order to avoid such arbitrary filing of appeal by an A.O. the Legislature vested the power of filing of an appeal with a senior officer i.e. Commissioner of Income Tax - who is supposed to verify the record before authorising the Income Tax Officer to prefer an appeal before the Tribunal. In the instant case the Commissioner of Income Tax has mechanically given his approval. A plain reading of the order of the A.O. or the CIT(A) would have highlighted that there was no case for making addition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. sought to bring to tax a sum of Rs. 9,15,956/- by taking into consideration the gross profit figure plus DEPB for the year ending 31.03.2005 as against the gross profit minus DEPB for A.Y. 2006-07. In order to highlight this aspect he adverted out attention to pages 24 & 25 from where it can be seen that in respect of A.Y. 2005-06 the sales were to the tune of Rs. 80,51,515/- and DEPB receipts were to the tune of Rs. 5,45,769/- and if trading account is prepared by adding the DEPB amount also on the credit side of the trading account the gross profit works out to Rs. 18,49,328/- which comes to a rate of 22.96% whereas excluding the DEPB the gross profit rate works out to 16.19% only. Similarly for A.Y. 2005-06 the trading account prepared by including DEPB on the credit side gives rise to a profit of Rs. 21,84,946/- which gives a rate of 18.11% whereas excluding DEPB the G.P. rate works out to 15.41%. It was thus submitted that the A.O. has followed an arbitrary method in making addition to the gross profit declared by assessee, though these facts are already available on record (page 2 of the paper book). He further submitted that the sales in the immediately preceding ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance as on 31.03.2006 and also interest thereon. The CIT(A) has committed a further error in sustaining an addition of Rs. 1,50,000/- overlooking the fact that in the year under consideration only a sum of Rs. 1,00,000/- has been taken as fresh loan whereas assessee repaid a sum of Rs. 2,00,000/-. Thus, an addition of Rs. 1,00,000/-, at best, could have been made but in the particular facts of the case even such addition is no maintainable since assessee repaid a sum of Rs. 1,00,000/- on 01.06.2005, which is deemed to be available as on 26.10.2005 if the cash credit is held to be non-genuine. In this regard he referred to page 82 of the paper book. He strongly submitted that the CIT(A) was totally confused in confirming the addition of Rs. 1,50,000/- referable to loan taken from M/s. Saabia International. It was also submitted that the proprietor of M/s. Saabia International is an income tax assessee (Pg. 8 of the paper book) and PAN is available on record and hence the identity and creditworthiness have been proved in the said case. Similarly, as regards the loan taken from Shri Khalid Khan he submitted that PAN and passport copy were filed before the CIT(A) and hence there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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