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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 ..... brought on record to highlight that all the payments were through bank account and the creditor has sufficient creditworthiness, there no addition is made and in cases of failure to furnish such records addition made in those repect is confirmed. Decided partly in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the A.O. has made the addition under section 68 of the Act. 4. With regard to the loan received from Mr. Afzal Mahadik the closing balance as on 31.03.2006 being Rs. 28,67,319/-, assessee was asked to prove the genuineness of the loan by providing supporting documents and in the absence of furnishing the details to support the genuineness of the loan the A.O. proceeded to add the closing balance of Rs. 28,67,319/- (which includes opening balance of Rs. 21,12,319/-) and also added interest component thereon @12%, which works out to Rs. 3,44,078/-. It is not understandable as to under which provision the A.O. seeks to add interest component. It is not the case of the A.O. that assessee was to receive some interest, which he is seeking to make an addition as income. It is also not the case of the A.O. that assessee claimed to have paid interest @12% and claimed deduction thereon, which could have been disallowed; disallowance is quite distinct and different in the Income Tax Act and this simple distinction should have been taken note of by the A.O. while seeking to make an addition of Rs. 3,44,078/- and, that too without specifying as to under which section he was seeking to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Mahadik is fully explained. 7. The Income Tax Officer, Ward 20(2)(3), Mumbai, the appellant herein, appears to have been aggrieved by the order passed by the learned CIT(A) on the aforementioned issue, presumably because he was of the firm view that atleast the addition of Rs. 28,67,319/- referable to the loan component deserves to be added under section 68 of the Act and hence an appeal was preferred on account of the fact that this appeal was duly authorised by the Commissioner of Income Tax 20, Mumbai under the powers vested in him u/s 253 of the Act. It is a well known principle of law that a power vested in a government official under a statute cannot be treated as a discretionary power unless specifically mentioned therein and in the present circumstances the Commissioner of Income Tax is duty bound to apply his mind as to whether it was a fit case for filing of an appeal or not before authorising the A.O. to prefer an appeal as otherwise the very purpose of giving the power of authorization to a senior officer gets frustrated. 8. Grounds urged on behalf of Revenue are extracted for ready reference: - "I. The learned CIT(A) has erred on facts and in law and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned party as on 31.03.2005 was Rs. 3,26,000/- and during the previous year relevant to A.Y. 2006-07 assessee had taken fresh loan of Rs. 1,00,000/- and repaid a sum of Rs. 2,00,000/- and thus the net balance standing in the name of M/s. Saabia International works out to Rs. 2,26,000/-. The A.O. observed that assessee failed to provide any details or any document or any confirmation to prove the loans and hence he added the closing balance as on 31.03.2006 along with interest @12%, presumably under section 68 of the Act. 13. Assessee incurred certain miscellaneous expenditure under the following heads and it was debited to his P & L Account: - Sr. No. Particulars Total expenses debited to P & L Account 1 Motor car expenses Rs. 56,362/- 2 Computer expenses Rs. 23,770/- 3 Travelling & conveyance expn. Rs. 91,152/- 4 Sundry expenses Rs. 22,360/- 5 Telephone and Mobile expenses Rs. 51,123/- 6 Rent, Rates & Taxes Rs. 25,000/- 7 Export Promotion expenses Rs. 4,03,994/- 8 Freight & Octroi Rs. 10,95,159/- 9 Clearing & Forwarding expenses Rs. 1,80,319/- Total Rs. 19,49189/- Admittedly, most of the expenditure incurred in cash was supported by self made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the addition referable to the interest addition made by the A.O. was deleted by the learned CIT(A), though there was no discussion about the unreasonable method adopted by the A.O. He merely mentioned that assessee has neither paid any interest nor claimed any interest expenditure in his P & L Account. As regards the addition referable to cash credit in the name of M/s. Saabia International, a proprietary concern of Shri Mohammed Shahid Ilyas, though assessee has furnished the requisite confirmation letter along with copy of the return of income and PAN, the learned CIT(A) was of the view that in the absence of requisite bank account of the concerned party the loan cannot be stated to have been proved. He, however, mentioned a new figure of Rs. 2,00,000/- which was stated to be outstanding in the name of M/s. Saabia International and therefore confirmed the addition to the extent of Rs. 2,00,000/-. 19. As regards the estimated disallowance of 30% on miscellaneous expenditure, the case of the assessee was that it is not possible to maintain bills and vouchers for verification in respect of certain expenditure since many payments were made in cash and some of the expenditure was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that most of the expenditure was supported by mere self-made vouchers and thus the A.O. estimated the amount disallowable at 30% whereas the CIT(A) has sustained the disallowance to the extent of 10% only and thus his order does not call for any interference. 23. While addressing the issue urged in Revenue's appeal, the learned counsel, appearing on behalf of assessee, submitted that the very basis for making the addition is arbitrary and on account of excessive use of the quasi judicial power vested in the A.O.; therefore it is a fit case where the methodology followed by the A.O. deserves to be highlighted. He further submitted that the A.O. on one hand categorically states that all the details called for were furnished but at the same time states that confirmation letters and supporting material were not furnished, which statement is contradictory in terms. He further submitted that where an assessee has obtained loan free of interest there cannot be addition towards interest since addition towards interest is permissible only when assessee was to receive certain interest from other party which was not declared or assessee claimed deduction towards interest payable which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first appellate authority was justified in cancelling the addition made by the A.O. 24. As noticed from the assessment order, the A.O. was fully conscious of the fact that Rs. 21,12,319/- was the closing balance as on 31.03.2005 and thus current year's loan was only Rs. 7,55,000/-. We asked the learned D.R., who has to make a fair representation of the matter, to explain as to whether any letter was addressed by him to seek clarification from the A.O. on this issue or whether there was any letter from the A.O. justifying his action of making addition of Rs. 28,67,319/- so as to appreciate the view point of the A.O., who is the appellant in the instant appeal. The learned D.R., fairly submitted that the record does not indicate any such material. 25. We have carefully considered the rival submissions and perused the record. Having regard to the peculiar circumstances of the case we are of the firm view that the A.O. not only sought to make an arbitrary addition by including the loan taken in the preceding year also, by roping in section 68 of the Act, but he has further sought to add the so called interest income presumably under section 68 of the Act. Such arbitrary action w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also to be contested before the Tribunal, assessee was put to great stress apart from incurring expenditure in engaging authorised representative at various stages. Since it is attributable to the arbitrary action of the A.O., we are of the view that it is a fit case to award costs. A token amount of Rs. 1000/- is awarded as costs - payable by Revenue. We order accordingly. Appeal filed by Revenue is hereby dismissed. 26. With regard to the cross objections filed by assessee, the learned counsel submitted that though the facts were on record, for want of proper representation certain facts available on record of the A.O. could not be properly focused before the tax authorities. As regards addition of Rs. 9,15,956/- referable to estimation of gross profit the learned counsel submitted that the A.O. has followed an arbitrary method of arriving at the above figure. Explaining further the learned counsel adverted our attention to page 2 of the paper book, which is the income statement filed along with the appeal papers, wherein earlier year's gross profit was shown at Rs. 13,03,469/- as against Rs. 18,57,737/- in the year under consideration and the net difference, if any, is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the A.O., while completing the assessment, has wrongly noted that the gross profit rate works out to 22.96%, which is the rate adopted after taking into consideration the DEPB income also, which in our considered opinion is not in accordance with law. However, the fact remains that assessee has not produced bills, vouchers or any other details in support of his claim that sales were made on competitive rates or fluctuation of dollar rate has given rise to low gross profit. Even if the gross profit as adopted for the immediately preceding year has been adopted for this year also the addition should be in the range of 1% of the sale of this year. On a conspectus of the matter we deem it fair and reasonable to sustain an addition of Rs. 1,00,000/- as against Rs. 9,15,956/- made by the A.O. To this extent the order of the learned CIT(A) is modified. 29. With regard to the addition made under section 68 of the Act the learned counsel submitted that in the case of M/s. Saabia International the opening balance was to the tune of Rs. 3,26,000/- and there was in fact reduction of the balance, in which event no addition is called for whereas the A.O. proceeded to make an addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs. 1,50,000/-. As noticed from pages 82 to 84 of the paper book the lender Shri Mohammed Shahid Ilyas, proprietor of M/s. Saabia International, is an income tax assessee having substantial income and the loan taken this year is only Rs. 1,00,000/- which was recorded as having been given immediately after repayment of loan of Rs. 1,00,000/- and even if assessee has to prove the source of loan of Rs. 1,00,000/- the same can be said to have been out of the amount shown to have been paid by assessee to M/s. Saabia International on 01.06.2005. Thus, in our considered opinion, the learned CIT(A) has not made out a case for addition of Rs. 1,50,000/-. We direct the A.O. accordingly. 33. This leaves us with ground No. 3 in the cross objections i.e. correctness of the addition of Rs. 1,94,918/- sustained by the learned CIT(A). Admittedly, most of the expenditure was not supported by bills and some of the expenditure was supported by mere self-made vouchers. Under the circumstances the A.O. disallowed 30% of the claim whereas the learned CIT(A) was very reasonable in restricted the disallowance to 10%. In fact the learned counsel, appearing on behalf of assessee, has not seriously ..... X X X X Extracts X X X X X X X X Extracts X X X X
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