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TMI Blog2011 (6) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of business and those which were not i.e. the items which had a personal element. The Assessing Officer also issued a show-cause notice asking the assessee to explain why 20% of such expenses should not be disallowed. The assessee submitted that he was so engrossed in his business that he had no time for his personal life, personal travel or the use of telephone for personal purposes. The assessee also submitted that it was not practicable to maintain a log book regarding the use of the vehicles and telephones. Reliance was placed on the case of Agarwal Trading Co. v. ITO (2007) 111 TTJ 589 (Del). The Assessing Officer rejected the assessee s submissions and observed that the facts of the case of Agarwal Trading Co. (supra) were not the same as that of the assessee. On his part, Assessing Officer placed reliance on several case laws and disallowed 20% of the vehicle and telephone expenses and made the addition of ₹ 17,391/-. 4. Before Ld. CIT(Appeals) it was submitted that the expenses were incurred wholly and exclusively for the purpose of business. The assessee had to deal with parties in Bihar, Jharkhand, Punjab and other far away places and same was explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s wife. No maintenance charges were paid for the premises since the same had been collected at the time of allotment of the property. The AO rejected the assessee s submission and observed that assessee had failed to furnish details of expenses under different heads which had been listed out in the show-cause notice and had only made very generalized submission. The assessee lived in a Society in a huge bungalow on which substantial sums would have been expended only on repairs etc. Taking all such facts into consideration, the AO estimated the assessee s annual household expenses at ₹ 3 lakh @ ₹ 3,000/- per month per adult member and ₹ 2,000/- per month for each minor member. After setting off the withdrawals of ₹ 1.32 lakh shown by the assessee AO added the balance sum of ₹ 1.68 lakh to the assessee s total income. 9. Before Ld. CIT(Appeals) it was claimed on behalf of assessee that Assessing Officer had avoided reproducing the relevant portion of assessee s submission. The assessee lives in Udhna which is not a posh area. The AO failed to bring any material on record to support his claim that the assessee and his family led an affluent life. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. 13. Ground No.3 and 4 taken by assessee read as under:- 3. The C.I.T.(Appeals) erred in upholding the addition of ₹ 40,896/- as undervaluation of stock of cement sheets. 4. The C.I.T.(Appeals) further erred in law and on fact in upholding an addition of ₹ 1,23,341/- as under-valuation of stock of M.S. Angle Channels. 14. Both these additions relate to under-valuation of stock. During the assessment proceedings the Assessing Officer observed that the assessee dealt with two types of fiber cement corrugated sheets; one was purchased for ₹ 180.7 and the other for ₹ 225.34 per sq.ft. However, in the closing stock the assessee valued all the 902 sheets @ ₹ 180 which according to the AO, was not correct. The AO issued a show-cause notice asking the assessee to explain why such sheets should not valued at ₹ 239.34 per sq.ft and why the difference of ₹ 14,896/- should not be added back on account of undervaluation of closing stock. The assessee furnished a detailed reply which has been reproduced by AO at para-8.1 of his assessment order. The assessee submitted that sheets being fragile are subjected to frequent damages which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) it was contended that Assessing Officer had capriciously made the addition by insisting that assessee should have followed the FIFO method however because of the nature of business assessee followed LIFO system in support of which necessary evidence had been furnished. Instead of substantiating his view with requisite evidence, the AO had tried to advice the assessee on the ways of handling the materials so as to prevent losses. The assessee had furnished detailed explanation regarding how the materials i.e. the cement sheets and the M.S. angle sheets were damaged in course of transit as well as during the period of storage. The business of the assessee is mostly on truck load basis and given the nature of the business, the assessee had to maintain substantial inventory to enable him to grab business opportunities involving bulk quantities. It was for this reasons that the assessee had to maintain substantial stock of such items and assessee had maintained substantial stock of such items. The assessee had maintained day-to-day stock with complete entries of inward and outward movements. The AO had not pointed out any error or omission in such records. Even though the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te record had been maintained of the damaged/corroded stock. Moreover, the Assessee s claim that he had very old stock, was not based on the realities of the business. The AO gave the finding that since the Assessee needed to maintain a stock of 22,210 kgs every fortnight, there would be no scope for any old stock to remain unsold. The ARs have simply beaten around the bushes and have made very vague and generalized submissions, even questioning the AO's competence in examining the Assessee s business practices. 14.2 Given such facts of the case, I have simply no other option but to confirm the additions of ₹ 40,896 and of ₹ 1,23,341 on account of undervaluation of the closing stock of cement sheets and M.S Angle Channels, respectively. 18. Before us Ld. Counsel for the assessee reiterated the same submission as made before lower authorities. Ld. DR relied on the order of lower authorities. 19. After hearing both the parties and perusing the record we find that both the additions for undervaluation of stock of cement sheets and M.S. angle channel have been made by Assessing Officer by following FIFO method of valuation of closing stock while the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result in shortages. There would have to be excess weight also sometimes. The assessee submitted copies of audit report of some other traders showing shortages. The AO noted that some of them never claimed any shortage and referred to the case of M/s Mahalaxmi Steels. With regard to a letter furnished by the assessee from one of the suppliers the AO observed that it appeared that supplier entertained the claim of shortage in weight only when the same was lodged in the presence of the driver of the truck in which material was dispatched. This showed that the intention of the supplier was to entertain a claim of shortage only on account of theft and not on account of difference in weights. The assessee had been unable to provide single document from any supplier regarding shortages in terms of weight. No entry was made in the stock register maintained by the assessee. In the stock register, the assessee recorded the quantity as actually received and as printed on the face of the bill, and not as shown on the face of the weightment receipts. On the basis of such observations, the Assessing Officer rejected the claim of shortages and added the sum of ₹ 1,62,133/- to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 565292 9627667 1244 21185.30 03-04 957946 27696735 3304 74836.60 04-05 1330335.830 37363580 5480.22 153884.50 05-06 157827.43 41804729 711.76 18854.50 In view of the above submission the matter needs fresh adjudication by the Assessing Officer and for this purpose, the matter is restores back to his file with the direction to verify the submissions of the assessee and then pass a fresh order as per law. This ground of assessee s appeal is also allowed for statistical purposes. 26. The assessee has taken ground No.6, which reads as under:- 6. The C.I.T. (Appeals) erred in law and on fact in confirming the addition of ₹ 7,95,000/- as unexplained cash credits. 27. On examination of the details of the creditors furnished by assessee the Assessing Officer observed that no identification including confirmation etc. has been furnished in respect of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arta of Shri Pyarechand R Shah HUF and Shri Vipul M Bafna for examination. The assessee had also failed to produce Shri Kothari, the alleged donor, and also to establish his creditworthiness. The AO came to the conclusion that the gift as also the deposits/advances shown by the assessee were not genuine. Consequently, the AO thus added the sum of ₹ 45,000/- + ₹ 2.50 lakh + ₹ 5 lakh = ₹ 7.95 lakh as unexplained cash credits in terms of Section 68 of the Act 30. Before Ld. CIT(Appeals) assessee reiterated the same submission as made before Assessing Officer, Ld. CIT(A) however confirmed the action of AO by observing as under:- 30 I have carefully considered the findings and the conclusion of the AO with regard to the unexplained deposits/advances of ₹ 45,000 and ₹ 2,50,000 as also the gift of ₹ 5,00,000. I have also gone through the lengthy and often irrelevant submissions of the ARs on this issue. Firstly, I do not agree with the repeated assertions of the ARs that the AO had accepted the explanations and the evidences furnished before him with regard to the said deposits and gifts. If that was so, there could not have been any scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors or the donor established nor was their creditworthiness. The confirmations filed as also return of income may have validated the entries in the books ass such but not the transactions as a whole since, the most important criteria for establishing the genuineness of the transactions had remained to be proved i.e. the identity and creditworthiness of the donors. The AO, therefore was fully justified in treating the deposit/advances of ₹ 45,000 and ₹ 2,50,000 as also the gift of ₹ 5,00,000 as unexplained. The addition of the sum of ₹ 7,95,000 u/s 68 of the IT Act is therefore, confirmed. 31. At the time of hearing before us Ld. Counsel for the assessee reiterated the same submission as made before lower authorities and further submitted that if one more opportunity is give to assessee he will be able to establish the identity and creditworthiness of the creditors/donor by producing them before Assessing Officer. Since Ld. DR did not seriously object to this prayer of the assessee, the matter is restored back to the file of Assessing Officer for such exercise. This ground of assessee s appeal is allowed for statistical purposes. 32. Ground No. 7 is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition made by AO on account of undervaluation of stock and shortages have been confirmed by him the addition made by applying higher GP ratio requires to be deleted. 36. Since in assessee s appeal we have already restored the matter back to the file of Assessing Officer in respect of undervaluation of closing stock and shortages the ground on which Ld. CIT(Appeals) gave relief to the assessee no longer exist. Therefore the order passed by Ld. CIT(Appeals) on this issue is also set aside and this matter is also restored back to the file of Assessing Officer for fresh adjudication in the light of our direction in assessee s appeal in respect of undervaluation of closing stock and shortages. These three grounds of Revenue s appeal are allowed for statistical purposes. 37. Ground Nos. 4 5 relate to disallowance of sum of ₹ 43,619/- u/s.40A(3) of the Act. 38. During the assessment proceedings the Assessing Officer observed that assessee had made payments towards transportation in certain cases in cash which were in excess of ₹ 20,000/-. He asked the assessee to furnish an explanation as to why disallowance should not be made u/s40A(3). The assessee explained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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