Vildirect: IncomeTax-caselaws-1999-VIL-101-ITAT-JDP

1999-VIL-101-ITAT-JDP

Equivalent Citation: TTJ 068, 027,

Income Tax Appellate Tribunal JODHPUR

Date: 24.12.1999

MANOHAR LAL.

INCOME-TAX OFFICER.

BENCH

Member(s) : B. M. KOTHARI., S. R. CHAUHAN.

JUDGMENT

4. The learned Departmental Representative submitted that the assessee had not produced any evidence to support his contention that GP rate of only 5 per cent was derived on sale of TVs. The corresponding purchase and sale invoices of the TV were not submitted before the Departmental authorities nor before the Tribunal. The learned counsel has not even been able to tell us as to which brands of TV were dealt by the assessee pursuant to a query raised by the Bench. The agreement executed with TV manufacturers/wholesalers were also not produced before the lower authorities. In the absence of any evidence on record, mere assertion on the part of the assessee that GP rate of only 5 per cent was earned on sale of TVs cannot be accepted. The AO has given elaborate reasons for invoking the proviso to s. 145(1). The AO also has clearly observed that GP in the immediately preceding year was declared by the assessee at 10.3 per cent. The assessee has engaged a Mistri in his shop for carrying out repairs but has not shown any income by way of repairing charges except Rs. 1,000 received towards repair. The AO was, therefore, fully justified in invoking proviso to s. 145(1) and applying GP rate of 11 per cent on sales declared by the assessee. He strongly supported the order of the CIT(A).

5. We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the Departmental authorities.

6. The AO on p. 2 of the assessment order has observed that major sales were that of TV amounting to Rs. 10,59,823 in respect of which quantitative details are available and the argument of the assessee that GP on sale of TV was only 5 per cent has also been incorporated. In fact it may be relevant to reproduce here the relevant lines appearing on p. 2 of the assessment order:

"In the previous year the assessee disclosed GP of Rs. 1,31,527 on sales of Rs. 12,80,639 which comes to 10.3 per cent. The profit shown this year is apparently low. It was stated that the major sales of Rs. 10,59,823 is made of TV in which quantitative details are available".

A reading of the aforesaid part of the assessment order clearly indicates that the AO was satisfied about the reasonableness of GP rate of 5 per cent shown on sales of TVs. But he observed that in the absence of quantitative details the profits shown on other items was not open to verification. If the GP on sale of TV amounting to Rs. 10,59,823 is calculated @5 per cent, it comes to Rs. 52,991. On the balance sale of Rs. 8,78,291 (Rs. 19 38,114 - 10,59,823) the assessee derived GP of 95,661 which gives GP rate of 10.89 per cent on other items. This GP rate on other items is thus better as compared to GP rate of 10.3 per cent declared in the preceding year. The AO has not pointed out any specific items of mistakes or discrepancies in the books of accounts. The entire purchases and sales are supported by vouchers and regular books of accounts. Mere absence of day-to-day stock register in the case of petty dealer who is dealing in hundreds of different items, cannot justify resort to estimation of profits, particularly when no mistakes or defects were found in the regular books of accounts provided by the assessee. We are, therefore, of the considered opinion that no addition could be sustained in the declared trading results. We, accordingly direct the AO to delete the addition of Rs. 64,532.

7. Next ground relates to confirmation of the disallowance of Rs. 26,616 out of interest paid to the various creditors, whose loans are stated to be old loans and they are stated to be close relatives of the assessee.

7.1. Shri Ranka, the learned counsel of the assessee, submitted that the balance outstanding in the loan account of the seven parties represent old loans. The amount of loans have been brought forward in the accounts of these seven parties from last 8/10 years and interest was credited in the account of all those creditors in the prior year also. Interest on all such loans were always allowed in the past. The assessments completed for all the past years have neither been revised under s. 263 nor any action under s. 147 has been taken.

7.2. Shri Ranka further pointed out that Shri Ramesh Chandra one of the creditors was produced before the AO. He confirmed the fact of deposit lying with the assessee. The mere fact that he did not remember the exact amount of deposit, cannot entitle the ITO to treat the old credit in his account as an unexplained deposit. The interest allowed to Shri Ramesh Chandra could not, therefore, be disallowed. He also drew our attention to the copy of account of Shri Ramesh Chandra submitted on p. 4 of paper-book. This account shows that the loan of Rs. 54,550 outstanding as on 1st April, 1989 increased to Rs. 60,980 as on 31st March, 1990, which includes further interest credited on 31st March, 1990, amounting to Rs. 6,530. Out of the credit balance of Rs. 60,980 as on 31st March, 1990, the loan to the extent of Rs. 30,000 was repaid by cheque No. 0849343 dt. 30th March, 1991. A further interest was credited on 31st March, 1991, to the tune of Rs. 7,320. This left a credit balance of Rs. 38,300 as on 31st March, 1991. The assessee repaid Rs. 25,000 by cheque No. 086705 dt. 20th April, 1991 and balance amount was repaid along with interest by cheque No. 0875593, dt. 30th March, 1992 for Rs. 14,900. The amount of interest of Rs. 1,600 was credited on 31st March, 1992. The account was thus squared up on 31st March, 1992. The Bench required the learned counsel to state whether the fact of repayment of the loans by cheque in the subsequent years, was brought to the notice of the AO or not. The learned counsel candidly accepted that this fact was not brought to the notice of the AO nor the CIT(A).

7.3. The second loan was in the name of Smt. Avantibai w/o Manna Lal Sutar, She is the mother of Shri Ramesh Chandra. She was also produced before the AO. She accepted the fact that she had deposited Rs. 28,000 some time about 10 years back and source was accumulation from rental income from a room at Chhoti Sadri, which was given to her by her father. The learned counsel contended that the burden which lay on the assessee has been discharged after producing Smt. Awantibai before the AO. The AO has doubted her capacity without any valid basis whatsoever. He also drew our attention to the copy of her account placed at pp. 7 and 8 of the paper-book. Copy of her account for the year under consideration as well as for various subsequent years indicates that her loan was repaid by various cheques issued in the years 1990-91 and 1992-93. The details of repayment by cheques to Smt. Avantibai were also not brought to the notice of the AO or the CIT(A) as admitted by Shri Ranka during the course of hearing before us.

7.4. The 3rd deposit relates to Shri Harish Chandra. Shri Harish Chandra is the elder son of Shri Manna Lal Sutar and brother of Shri Ramesh Chandra. Since he could not be produced by the assessee, the AO issued summons and recorded the statements of Shri Harish Chandra. Shri Harish Chandra in his statement, as observed by the AO in the assessment order, stated that he does not have any knowledge about any deposit with the assessee, Shri Manohar Lal, P/o M/s Bharat Electric & Radio Engg. Works, in his name or his father's name or in the name of his brother and mother. Shri Harish Chandra was the partner in this business upto asst. yr. 1981-82. Credit balance in his account is also an old balance which was being carried forward from year to year since his retirement from the said partnership business. Shri Harish Chandra also stated in the said statement that the financial condition of his family is very weak and the question of keeping heavy deposits with Shri Manohar Lal does not arise. He also stated that there was no house of his mother at Choti Sadri and there was no rental income. He has no knowledge that any house was gifted to his mother. He further stated that to the best of his knowledge Shri Manohar Lal, on his own credited amounts in the name of his mother. He further mentioned that after partition nothing was payable by the assessee to him and his family. Shri Harish Chandra in his statement stated that financial condition of Shri Harish Chandra and his two brothers is weak and had there been any deposit to the extent of Rs. 1,65,000 as claimed by the assessee, they could have established business in the Rana Sangha Market Public Shops. Even at the time of death of his father, Shri Manna Lal, expenditure was partly managed by their brother-in-law of Nathdwara and Bhilwara and the loan of Rs. 12,000 taken on that occasion is being repaid by Shri Ramesh Chandra and Shri Harish Chandra. Shri Harish Chandra clearly stated that the assessee himself is crediting money in the name of his close relatives and is charging interest thereon without the knowledge of the creditors. Shri Ranka submitted that no such statement of Shri Harish Chandra was recorded in the presence of the assessee nor any copy thereof was supplied to the assessee. Shri Harish Chandra was never produced before the assessee for cross-examination by them. Hence, no reliance can be placed on his statement recorded behind the back of the assessee. Shri Ranka also drew our attention to the copy of account of Shri Harish Chandra appearing on p. 5 of paper-book. The copy of account furnished at p. 5 relates to asst. yrs. 1989-90 to 1993-94. The said copy of account shows that the interest was credited in the account of Shri Harish Chandra for various subsequent years. The amount of loan along with interest was repaid to Shri Harish Chandra vide following cheques:

Cheque No.       Date          Amount

0875566          30-1-1992     20,000

0875594          30-3-1992     20,000

0918200           2-9-1992     20,000

720802            3-9-1992     22,600

The account was squared up on 31st March, 1993, to Nil. The assessment for the year under consideration namely, asst. yr. 1989-90 was made on 31st Dec, 1990, in which the aforesaid contents from the statement of Shri Harish Chandra have been mentioned by the AO. The details of repayment of loan in the subsequent years in the case of Shri Harish Chandra had also not been brought to the notice of the AO or the CIT(A), as admitted by the learned counsel, Shri Ranka during the course of hearing.

7.5. Shri Ranka submitted that the remaining four creditors were not even summoned. The AO has not brought any material on record to show that the loan in the remaining four accounts was non-genuine. Hence, there is no justification for disallowing interest allowed to the remaining four creditors.

7.6. Shri Ranka has strongly urged that interest on all the old loans should be allowed as deduction, as has consistently been allowed in the past and there is no material on record to show that these loans are non-genuine or bogus loans.

8. The learned Departmental Representative strongly supported the order of the CIT(A) and relied on the reasons mentioned in the assessment order. He pointed out that the mere fact that interest on these loans was allowed in the earlier years under the summary assessment scheme, the same cannot prevent appropriate inquiry and investigation by the AO in the year under consideration. The principle of res judicata does not apply to IT proceedings. Every year is an independent assessment year the statement of Shri Harish Chandra, brother of the assessee, disclosed the truth of the matter. He has clearly confirmed the credits in the account of assessee's brothers, mother and other close relatives are not genuine and the assessee has credited amount in the account of such close relatives merely with a view to claim higher interest expenditure in all the subsequent years. He thus strongly supported the order of the CIT(A).

9. We have carefully considered the submissions- made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. The disallowance of interest to the seven creditors, who are said to be close relatives of the assessee is mainly based on the statement of Shri Harish Chandra recorded by the AO. It is true that the statement of Shri Harish Chandra was recorded behind the back of the assessee and before placing reliance thereon the AO ought to have supplied copy of that statement to the assessee and AO should have also produced Shri Harish Chandra for cross-examination by the assessee. This has not been done by the AO in the present case. However, the failure on the part of the AO to supply a copy of the statement of Shri Harish Chandra or the failure to produce Shri Harish Chandra for cross-examination by the assessee cannot automatically lead to cancellation of disallowance of interest on the facts of the present case. Shri Harish Chandra who was formerly a partner in this very business gave a clear and categorical statement that no amount was outstanding against the assessee after he left the firm. On the other hand, the assessee has shown credit balance in the account of Shri Harish Chandra as on close of the relevant year at Rs. 57,650. Interest of Rs. 6,176 was credited in his account which is part of the total interest claimed by the assessee. This statement of Shri Harish Chandra inter alia stating that nothing was receivable by him from the assessee by way of loan or deposit, must have been recorded by the AO before 31st Dec, 1990, when the assessment was completed. Thereafter the loan standing in the name of Shri Harish Chandra has been repaid by cheques the details of which have been given in earlier part of this order. The loan repaid along with interest aggregates to Rs. 82,600. Such repayments were made in the year 1992 by four different cheques. In order to ascertain the truth and veracity of the statement of Shri Harish Chandra or the truth and veracity of the credit balance shown in the loan account of Shri Harish Chandra by the assessee in his books of accounts, it is necessary to verify the facts of the loans having been repaid in the subsequent years by cheques.

10. Like the loan of Shri Harish Chandra, copies of accounts of all the seven depositors have been submitted in the compilation. Copies of account of all those creditors reveal that their loans have also been repaid fully in subsequent years by various cheques, the details of repayment by cheques to all the seven depositors in question in subsequent years were not furnished to the AO nor before the CIT(A). It is, therefore, necessary to verify the fact relating to repayment of loans to all the seven creditors in question so that the genuineness of the credits can be fully verified.

11. On a careful consideration of the entire relevant facts and circumstances of the present case, we are of the view that the order passed by the CIT(A) and the AO in relation to disallowance of interest aggregating to Rs. 26,616 should be set aside and the matter should be restored back to the AO with the direction to decide the said point afresh after conducting further probe, investigation and inquiries and after providing adequate opportunity to the assessee. The AO while deciding this point afresh will inter aha, take into account the following points:

(a) He must obtain the original cheques by which the loan of these seven creditors is claimed to have been repaid in the subsequent years from the concerned bank and examine whether such loans were repaid by a/c payee cheques in favour of the respective depositors or the amount of repayment was withdrawn by a bearer cheque. In case the repayments have been made by a/c payee cheques to the respective depositors, the genuineness of all these credits should be accepted by the AO without any further inquiry and investigation particularly in view of the fact that all these loans are old loans and interest thereon has been allowed in the past.

(b) However, in case the loans have been repaid otherwise than by a/c payee cheque then he should record the statement of all the depositors. This may enable the AO to ascertain the truth whether the loan a/c credit balance in the account of the seven depositors in fact belong to the respective depositors or the amount had directly or indirectly flown back in favour of the assessee.

(c) The AO will supply the copies of statements of all the depositors to the assessee and/or will record the statement of these depositors in the presence of the assessee and will also provide reasonable opportunity for their cross-examination by the assessee.

12. The AO will decide the aforesaid point afresh in accordance with the provisions of law and after providing adequate opportunity to the assessee.

13. In the result, this appeal is partly allowed for statistical purposes.

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