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TMI Blog2010 (1) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... lac received in the business on 20th May, 2004. (ii) Cash of ₹ 2 lacs received in the business on 6th Aug., 2004. (iii) Cash of ₹ 5 lacs received in the business on 5 March, 2005. 4. These deposits were made in the capital account of one of the partner, namely, Shri Gopal Bhasin. The assessee submitted before the AO that partner, Shri Gopal Bhasin had withdrawn certain cash amount from his personal account in his proprietorship firm, which money was introduced towards the capital in the present assessee firm. The assessee furnished the copy of bank passbook, etc. in support of his contentions. However, the AO has treated these deposits as undisclosed cash credit of the assessee firm. 5. On an appeal before the CIT(A), the assessee submitted that Mr. Gopal Bhasin, partner of the present assessee firm was also running a proprietary concern in the name and style of B2B Connectors, where from he had withdrawn cash amounts and deposited the same in the present partnership firm. Relevant extract of the cash book of proprietary concern namely B2B Connectors, alongwith other papers were furnished before the CIT(A), where from it was clear that amounts of ₹ 1 lac, & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the exception provided under r. 46A(1) to admit the additional evidences filed before the CIT(A). He, therefore, admitted the additional evidences, which were adduced by the assessee at the appellate stage and considered them for deciding various additions made by the AO. 7. After considering the assessee's explanation and the remand report, the CIT(A) found that the assessee has been able to give satisfactory and reasonable explanation as to the source of deposit made by the partner, Shri Gopal Bhasin. The CIT(A)'s operative order on this issue runs as under : "I may revert to the issue of addition made under s. 68 to the tune of ₹ 8 lacs. I have gone through the order of the learned AO, the submissions made by the assessee as well as the remand report filed by the learned AO. The stand of assessee is that the partner of the assessee has introduced the amount of ₹ 8,00,000. The partner Shri Bhasin was also running a proprietary concern is the name and style of B2B Connectors from where he had drawn cash amount and introduced the same in the appellate firm. From the books of M/s B2B Connectors, it is observed that the following amounts have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acs and ₹ 8 lacs on 20th April, 2004, 6th Aug., 2004 and 5th March, 2005 from his proprietary concern and deposited the same in the partnership firm on 20th May, 2004, 6th Aug., 2004 and 5th March, 2005, respectively. It is not the case of the AO that the amount withdrawn by the assessee from the proprietary concern has been otherwise used and utilized for some other purposes. We are, therefore, inclined to uphold the order of the CIT(A) in deleting the addition of ₹ 8 lacs on account of deposits made by Shri Gopal Bhasin, partner of the assessee firm. Thus, this ground raised by the Revenue is rejected. 11. Next issue is with regard to the addition of ₹ 26,39,294 made by the AO on account of bogus purchases. 12. From the examination of the books of account produced during the course of assessment proceedings, it was observed by the AO that in respect of few parties, most of the payments on account of purchases made by the assessee were made in cash. According to the AO, this system was not in conformity with the normal practice followed by the assessee, when most of the payment were made through banking channels. The AO, therefore, asked the assessee to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the various letters and confirmations filed by the assessee. 18. The CIT(A)'s order on this issue runs as under : "32. In the remand report dt. 5th Feb., 2009, it has been submitted by the learned AO as under : 'Addition of ₹ 26,39,294 on account of bogus purchases : The AO made this addition due to non submission of details and confirmation in spite of specific request and also observing that payments for purchase made in cash are below ₹ 20,000 to avoid appeal provisions of s. 40A(3). The issue of admissibility of additional evidences has already been discussed above.' "In the rejoinder filed on 9th March, 2009, the assessee has stated that as the AO has conceded on the issue, the addition should be deleted. I have carefully gone through the order of the learned AO and the submission filed in the remand report dt. 5th Feb., 2009 by her, as also the submissions made by the assessee insofar admission of additional evidences is concerned. I have carefully taken the same on record for the reasons cited in para 9 above. Perusal of the impugned assessment order also reveals that allegations have been made without supporting evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity no longer required to be paid by the assessee. The AO, therefore, made the addition of ₹ 9,46,579. 23. On an appeal, the CIT(A) deleted the addition. 24. The CIT(A) observed that there was an opening balance in respect of the said party as on 1st April, 2004 amounting to ₹ 9,15,916.94, and in the month of February, 2005, the assessee received further sum of ₹ 30,662.25, taking the aggregate amount of advance to ₹ 9,46,579. The CIT(A) has made a reference to the decision of Tribunal, in the case of Shri Vardhman Overseas Ltd. vs. Asstt. CIT (2008) 24 SOT 393(Del), where it was held that the genuineness of the advances can only be examined in the year, in which they were credited in the accounts of the assessee. The following observation of the Tribunal was taken into consideration by the CIT(A) : "13. According to the above decision the requirements for application of s. 41(1) are that the assessee himself should acquire the benefit by way of remission cessation of that trade liability during the year in which such event occurred and such value of benefit is made chargeable to income-tax as the income of the previous year wherein such benefit wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the orders of the authorities below. 27. It is not in dispute that the assessee has shown the amount of ₹ 9,46,579, in the balance sheet, being the amount payable by the assessee against the advance received from the concerned party viz., BHP Industries Ltd. The assessee has not written off this amount in the books of account. The assessee has acknowledged the liability by showing same in the balance sheet. The AO has not brought any material on record to show that the liability, which is appeared in the balance sheet, has actually been ceased and it is no longer payable by the assessee. Merely because no confirmation has been filed by the assessee during the year under consideration, it by itself cannot be a basis that this liability is no longer payable by the assessee. We, therefore, uphold the order of the CIT(A) in deleting the addition. Hence, this ground raised by the Revenue is also rejected. ITA No. 3014/Del/2009 28. We shall now come to appeal filed by the assessee. 29. The effective ground raised by the assessee is as under : "That the learned AO as well as CIT(A) was not justified in making the following additions/disallowances : (a) Duty drawback ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully gone through the orders of the authorities below. 33. It is not in dispute that the assessee has been following mercantile system of accounting. Sec. 145(1) as amended by the Finance Act, 1995 w.e.f 1st April, 1997, provides that it is upon the assessee to follow either cash or mercantile system of accounting. In other words, mixed or hybrid system of accounting as stood prior to the amendment has not been recognized for the purpose of assessment under the IT Act after 31st March, 1997. It is, therefore, clear that if any income is accrued to the assessee in any assessment year as per the method of mercantile system of accounting regularly followed by the assessee, the assessee is bound to account for same in the return of income and cannot embark upon the reasons that it is to be included only on cash basis. Following mercantile system of accounting in respect of one item of business and following cash system of accounting in respect of any other item is no more permissible after 1st April, 1997, as so expressly provided under s. 145(1). However, with regard to the quantification of duty drawback accrued to the assessee, we find that the AO has determined the amount on estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as deduction as per the provisions contained in s. 40(a)(ia) of the Act. 40. On an appeal, the CIT(A) confirmed the AO's action by observing as under : "25. Turning to the facts of the case, it is undisputed that the assessee has made payment to M/s Committed Cargo Care (P) Ltd. The payment was of ₹ 4,80,981. It is also undisputed that the assessee had to deduct tax under s. 194C. The assessee had not deducted tax under s. 194C during the financial year. On 9th March, 2009, the assessee has stated that tax has been deducted and payment has been made to the Government Exchequer. A perusal of the counter foil submitted on 9th Sept., 2009, it reveals that a sum of ₹ 10,899 has been tendered on 3rd March, 2009 (financial year 2009-10) and not during the financial year 2004-05. Further the assessee had taken the stand that M/s Committed Cargo Care (P) Ltd. has offered the sum for taxation. I am not going into the merits of this agreement as no proof of the same had been produced before me. The assessee had also not pressed this issue during the remand proceedings, before the learned AO. As such, on the basis of the provisions of s. 194C r/w s. 40(a)(ia), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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