Delhi High Court
Commissioner Of Income Tax vs Superior Crafts on 6 March, 2012
Author: Sanjiv Khanna
$~16 to 19.
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 244/2009, 547/2011, 548/2011 & 615/2011
COMMISSIONER OF INCOME TAX ..... Appellant
Through Ms. Suruchi Aggarwal, Sr.
Standing Counsel.
versus
SUPERIOR CRAFTS ..... Respondent
Through Mr. Sastish Khosla & Mr. Manu
K. Giri, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V.EASWAR
ORDER
% 06.03.2012
Revenue has preferred these four appeals under Section
260A of the Income Tax Act, 1961 (Act, for short) in the case of
a partnership firm, Superior Crafts. ITA No. 244/2009 pertains
to assessment year 2002-03 and is directed against the order
dated 28th March, 2008 passed by the Income Tax Appellate
Tribunal (tribunal, for short). As this appeal was treated as a
lead case by the counsel for the parties, we will first refer to and
decide this appeal.
2. In the assessment year 2002-03, the Assessing Officer
had directed special audit under Section 142(2A) of the Act.
After receiving a special audit report, the Assessing Officer
rejected the closing stock as declared by the respondent
assessee and held that there was under-valuation of closing
stock to the extent of Rs.1,49,28,900/-.
3. The CIT (Appeals) confirmed the said addition, but by the
impugned order the tribunal has deleted the said addition.
4. The contention raised by the appellant Revenue is that the
decision of the tribunal is perverse. Learned counsel for the
appellant has placed reliance on three facets. Firstly, stock
register was not maintained or at least not produced before the
Assessing Officer. She submits that the Assessing Officer has
recorded that the stock register was possibly maintained by the
assessee but deliberately not produced. Secondly, in the special
audit report, adverse remarks have been recorded, but not given
due credence by the tribunal. Lastly, it is submitted that there
was a change in method of valuation of closing stock. In this
connection, she has drawn our attention to the table noted by
the Assessing Officer, who has held that the closing stock was
bifurcated into three categories; finished goods, semi finished
goods and goods under process. The Assessing Officer has
stated that the opening stock of finished goods was valued @
90% of the sales recorded/made for first 20 days of the
beginning of the year i.e., 1st April, 2001 to 20th April, 2001 but
the closing stock was valued @ 90% of the sales made in the
period of 15 days after end of the financial year from 1st April,
2002 to 15th April, 2002. Similarly, „Semi finished Goods‟ and
„Goods under Process‟ were valued @ 74% and 64% of the sale
value, respectively but the period of days was 20 days and 35
days for the purpose of opening stock but 15 days and 20 days
for the purpose of closing stock. She has drawn inspiration from
the findings recorded by the CIT (Appeals), who has held that
there was change in the method of valuation of closing stock as
the assessee had computed the closing stock by applying
different periods in which the sales were made viz. the opening
stock. Thus, an anomaly has resulted and the consequence
was understatement of closing stock.
5. To examine the contention of the learned counsel for the
Revenue, we have gone through the papers and material placed
before us. The stand of the appellant Revenue that there was a
change in the method in the valuation of closing stock is false
and wrong. Findings to this effect recorded by the CIT (Appeals)
and the Assessing Officer are incorrect. The assessee‟s case,
which has been accepted by the tribunal, is that the assessee
was not maintaining stock register on a daily basis. This fact is
also mentioned in the audit report and stated in the report
submitted by the special auditor. The allegation that stock
register was maintained but not produced is an assumption or
surmise without any foundation. The assessee undertakes
physical stock inventory at the end of the financial year. The
physical inventory is divided and consists of four categories;
finished goods; semi finished goods; work under process; and
raw material. The finished goods are valued at 90% of the sale
value i.e. the sale price received on sale made in the next year.
Semi finished goods and goods under process are valued at
74% and 60% of the sale value. The raw material is valued at
costs. The Assessing Officer has not disturbed or disputed the
closing stock of raw material. The closing stock of finished, semi
finished or work in process, it is not disputed was sold in the
next assessment year and sale value was received when the
export was made. The contention of the Revenue is that
opening stock and closing stock of finished, semi finished or
work in process must be sold/exported within the same time
period. For example, opening stock of finished goods was sold
within 20 days and therefore closing stock of finished goods
should have sold/exported within 20 days. Accordingly, entire
exports made in 20 days should be treated as closing stock of
finished goods. The time period during which the finished goods,
unfinished goods and goods under process etc. were sold and
exported depends upon various factors, like, availability of
container, inspection by the importer‟s agent, need and
requirement of the importer, time of shipment etc. The closing
stock, whether finished, semi finished etc. need not be
sold/exported within a fixed/specified period each year. There
cannot be any such assumption and it is not logical to accept
this proposition. The contention of the Revenue is that opening
stock and closing stock must be sold/exported within the same
period cannot be accepted. The respondent assessee has,
before us, filed a chart giving year-wise details of the closing
stock from the assessment year 1997-98 to 2005-06 in respect
of finished goods, semi finished goods, goods under process
and raw material. The said chart indicates that the closing stock
was exported or was sold in different time spans in each year.
This chart was filed before the tribunal. There is no consistency
or certainty in this regard and indeed there cannot be any
consistency and certainty as to the period when the finished,
semi finished or goods under process would be sold by way of
export. The charge/allegation of change of method of valuation
of closing stock is baseless, factually incorrect and has to be
rejected.
6. The Special Auditor in his report in respect of the stock in
trade had observed as under:-
"
S. Particulars Reference Amount Remarks
No.
1 Stock in Enclosure 1,49,28,900/- The observations
trade "B" are summarized as
under:
No paper
stock records
kept.
Change in
method of
valuation of
stock.
Certain
elements and
cost are
ignored while
valuing the
stock.
The stock in
earlier years
valued as
percentage of
requirements
of number of
days. The
requirement
as number of
days in
current years
is
substantially
less than in
earlier years.
The method
of valuation of
closing stock
is neither
reorganizer
nor
recommended
by the
Accounting
Standard 2
issued by the
Institute of
Chartered
Accountants
of India.
Suppression
in Closing
Stock
Rs.1,49,28,90
0/-.
7. As noticed above, the tribunal has clearly and rightly held
that there was no change in method of accounting for closing
stock in the earlier years. The tribunal has further held that the
special auditor had rightly held that the stock in the earlier year
and the subsequent year was valued at a particular percentage
of sale price. With regard to the elements and cost element
included while valuing the stock, it will be appropriate to note
that in spite of the observations of the special auditor, the
Assessing Officer did not interfere/reject the valuation of the
closing stock made by the assessee @ 90%, 74% and 60% of
the sale value for finished, semi finished and goods under
process. There is a good reason why the Assessing Officer did
not disturb the said valuation. The gross profit rate, as declared
by the assessee, was 28.92% and after the additions made by
the Assessing Officer, it had gone up/increased substantially. In
case, the closing stock is calculated by excluding the gross profit
rate, the value of the closing stock would have come down
substantially. The observation of the special auditor that
expenses/costs have been left out while computing closing stock
is factual incorrect and has no basis. No document/material has
been filed by the Revenue before us to justify their contention.
8. We may reproduce the findings recorded by the tribunal
on the question of closing stock in the impugned order:-
"4.8 We have perused the records and
considered the rival contentions carefully.
The dispute raised in this ground is
regarding method of valuation of semi
finished, finished and goods in progress
appearing in the closing stock. The
assessee admittedly is not maintaining day-
to-day account of the stock due to practical
difficulties because of nature of business.
The assessee had been taking periodical
inventory of stock. The items of finished
goods, semi finished goods and goods in
process appearing in the closing stock at the
tiend of the eyar have been valued on the
basis of sales made of finished goods
relating to the items appering in the closing
stock in the immediate following accounting
year. From the sales made in the next year,
the first sales made up-to the quantity of
finished stock were being allocated towards
finished stock; the second sales up to the
quantity of semi finished stock were
appropriated towards the semi finished stock
and the rest towards the goods under
process. The assessee was adopting a
particular percentage of these sales as per
details given in para 4 of this order earlier for
determining the value of closing stock. The
A.O. did not accept the plea of the assessee
that it was not possible to maintain proper
accounts of stock records. He also noted
that the assessee had taken a shipping loan
against the stock at the margin of 25%,
which meant that stock at the end of the year
should be 125% of shipping loan but actually
it was only 80%. He, therefore, rejected the
method of valuation adopted by the
assessee. He adopted the period of sales
for the purpose of stock valuation same as in
the case of opening stock but accepted the
percentage of sales adopted by the
assessee in respect of different categories.
This resulted into addition of Rs.14928900/-
on account of under valuation of closing
stock. In appeal, CIT(A) also noted that the
assessee had not produced the stock
inspection report of the bank in connection
with the shipping loan and also did not give
any reason for ensuring the premises at D-
13, Mundappa, although no stock was stated
to be maintained there. Ensured value of
stock was also pointed out to be higher. He,
therefore, agreed with the decision of the
A.O. and confirmed the addition.
4.9 On careful consideration of all the
aspects of the matter, we find that the
approach adopted and the finding given by
the lower authorities in relation to closing
stock valuation is not correct. It is an
admitted fact that the assessee had not
been maintaining day-to-day account of the
stock. The assessee has been determining
the closing stock items on physical
verification at the end of the year. For
valuing the inventory appearing in the
closing stock, the assessee has to follow a
particular method. The assessee has either
to compute the cost of each item separately
or he can derive the cost after deducting
certain margin from the sale price.
Considering the volume of business and
numerous items involved, the assessee has
been valuing the finished goods, semi
finished goods and goods in progress on the
basis of sale price of these items sold in the
subsequent year after deducing a particular
margin, which has been uniformly followed
by the assessee in the earlier and the
subsequent years. For computing the sale
values of items of closing stock in different
categories, the assessee has been
appropriating the first sales towards the
finished goods, the next sales towards the
semi finished goods and the balance against
the goods under progress. This is a
systematic and reasonable basis adopted by
the assessee, which has been uniformly
followed. As the quantity of items appearing
in closing stock will vary from year to year,
the period of sales adopted for valuation of
closing stock in different year will also differ.
This has been demonstrated by the
assessee by producing a chart regarding the
valuation for different years which show that
period of sales adopted for different years is
different.
4.10 We find that the A.O. has accepted the
basis of valuation of closing stock items
adopted by the assessee i.e. as a specified
percentage of sales of the closing stock
items. He has rejected the inventory of
closing stock and has taken the period of
sales of the closing stock items as the same
period as taken for the sale of closing stock
of last year in order to determine the closing
stock inventory and its value. One of the
reasons given for rejecting the closing stock
is that the value of closing stock shown was
only 80% of shipping loan whereas as per
terms and conditions of loan it should have
been 125%. But there is no material
collected by the A.O. to show that the
closing stock was actually more than the one
declared by the assessee. Violation of terms
and conditions of loan or the fact that the
assessee did not produce the stock
inspection report of the bank, cannot be the
ground for rejecting the closing stock
declared by the assessee. Similarly, the
ensured value of stock being higher or
insuring of some premises other than the
factory premises for the purpose of stock are
also not conclusive factors in determining
the stock on the last day of the year. It is an
undisputed fact that there was no stock
found at the insured premises. Further, the
insured value i.e. the sum insured is the
maximum value the assessee can get as per
insurance rules and it has no relevance to
availability of stock on a particular day which
may vary from time to time. No efforts have
been made to obtain the stock inspection
report from the bank or to gather any other
material to establish that the closing stock on
the last day of the accounting period was
higher than the declared value. Even if the
A.O. rejects the closing inventory on the
ground that no day to day stock register is
maintained, he had to determine the gross
profit only on estimate either on the basis of
assessee‟s own past record or on the basis
of a comparable case. No comparable case
has been brought on record and the GP rate
declared by the assessee this year at
28.93% is substantially higher than the GP
rate 19.16% accepted in the assessee‟s own
case in the immediate preceding year. In
view of better results, no addition is possible
on account of trading account of which
closing stock value is an integral part. The
assessee has followed a reasonable basis of
valuation of closing stock, which has been
regularly followed and accepted by the
department in the earlier years and in the
subsequent year. In view of this position
and the GP rate declared being higher this
year compared to accepted GP rate in the
immediate preceding year, any addition on
account of closing stock valuation is not
justified. We, therefore, set aside the order
of CIT(A) and delete the addition made by
the A.O."
9. The aforesaid findings recorded by the tribunal cannot be
categorized and regarded as perverse. These are factual
findings based on reasoning and referring to the contentions.
We may note here that the assessee had total exports turnover
of 25.77 crores and the closing stock declared by them was
Rs.8.63 crores, which is equal to about three months of the
turnover. The Assessing Officer did not go into the question of
lead time, i.e., the time for preparation of the finished product
from the date of purchase of the raw material. It is interesting to
note that for assessment year 2003-04, an assessment order
was passed on 31st March, 2006 and in the said assessment
order no addition whatsoever was made to the closing stock but
the method adopted by the assessee for the said assessment
year was same. In these circumstances, no substantial question
of law arises out of the finding recorded by the tribunal on the
question of valuation of closing stock.
10. The next question relates to disallowance/addition of
Rs.25,80,879/- made by the Assessing Officer on account of
travelling expenses incurred by Deven Chachra, who is related
to the partners of the firm. Learned counsel for the Revenue
has submitted that the order of the tribunal is perverse and
merits interference in view of the findings recorded by the
Assessing Officer, which were confirmed by the CIT(Appeals).
The Assessing Officer while making the said addition has
observed that Deven Chachra was paid salary of Rs.1,14,000/-
per annum but this was not paid pursuant to specific employer-
employee relationship. The exact findings recorded by the
Assessing Officer read:-
"...Upon the comments as made in other
para‟s and findings given by the special
auditor that the salary to Mr. Deven Chachra
was only an entry and not paid in pursuance
to the specific employer-employee
relationship. At this stage it will not be out of
place to reliance on sub-para k below, his
salary is only Rs.1,14,000/- per annum and
his expenditure on the mobile phone has
been considered above of Rs.2,19,430/- and
the same has been disallowed. Again no
evidence has been placed on record to
substantiate the visits of Deven for the
purposes of business of the firm. The
assessee is only attempting to cover up the
personal expenditure as business without
substantiation. In view of any evidence the
entire expenditure of Tour & Travelling of
Deven of Rs.25,80,879/- is disallowed."
11. The tribunal by the impugned order has held that Deven
Chachra was an employee. He is having degree of Bachelor of
Science and Economics, with specialization in marketing from
Pennsylvania University, Wharton School of Business. He was
CEO of the firm since 1994. We may note that statement of
Deven Chachra was recorded in the assessment year 2003-04
but an ad hoc amount of Rs.5 lacs was disallowed from the
overseas travel expenses on his travel, on ground of personal
expenses. The Revenue has not challenged and has accepted
the finding of the tribunal that Deven Chachra was an employee
of the respondent assessee and on the salary paid to him. But,
the challenge is to the foreign travel expenses of Rs.25,80,879/-,
on the ground that these were not incurred for the purpose of
business. The Assessing Officer had disallowed the entire
expenditure of Rs. 25,80,879/- The tribunal while partly deleting
the disallowance held that the expenses were incurred for
purpose of business under Section 37 and observed as under:-
"8.4 We have perused the records and
carefully gone through the submissions
made by both the parties. The dispute
raised in this ground is regarding
disallowance of travelling expenses of Shri
Deven Chachra in India and abroad
amounting to Rs.2580579/-. The case of the
assessee is that Shri Deven Chachra was an
employee who had undertaken the travels
for negotiation with foreign buyers,
negotiation of disputed issues and
settlement of rates and approval of samples
etc. The assessee had filed copies of e-
mails to substantiate the claim that the
expenditure had been incurred for the
purpose of business. It has also been
submitted that the expenditure under this
head had been allowed in the earlier year
and in the succeeding year in scrutiny
assessments, as was clear from the chart
placed at page 1265 of Paper Book-IX. The
case of the revenue is that, it was not
established that Shri Deven Chachra was an
employee and the expenditure had been
incurred for the purpose of business. The e-
mails produced by the assessee had
originated from India, which can be sent
from sitting in a room in India and these did
not contain details of business activities.
We have considered the matter carefully.
Out of total tour and travel expenses on
account of Mr. Deven Chachra amounting to
Rs.2580879/-, a sum of Rs.2493842/- is on
foreign travelling. For claiming any
expenditure as deduction, burden is on the
assessee to prove that the expenditure has
been incurred wholly and exclusively for the
purpose of business. From e-mails, it
cannot be established that the entire
expenditure had been incurred for the
purpose of business. The only details given
by the assessee at page 43 of paper book-V
were the place of visit, purchases of foreign
exchange and the money spent. Merely
because the person had travelled abroad
and the money on foreign travel had been
actually spent, cannot establish that the
expenditure was incurred wholly and
exclusively for the purpose of business.
Even if the foreign travel had been made for
the purpose of business, the personal
expenses or expenses unrelated to the
business trip cannot be allowed. No details
were given as to how the money was spent
or whether there was any invitation from the
buyers for discussing any business matter.
However, we can also not overlook the fact
that substantial expenditure on tour and
travel of Shri Deven Chachra have been
incurred and allowed by the revenue in the
earlier years as well as in the subsequent
year. In the immediate preceding year,
expenditure on this account claimed at
Rs.2201052/- was allowed in assessment.
In the immediate succeeding year, the
assessment for which had been completed
after the impugned assessment, expenditure
on account of tour and travel of Shri Chachra
had been claimed at Rs.2615341/- and a
sum of Rs.5 lacs on estimate has been
disallowed under the head „tour and travel‟.
The business requirement of the substantial
tour and travel by Shri Chachra has
therefore, been accepted by the revenue
authorities in the earlier years as well as in
the subsequent year. The disallowance of
entire expenditure is therefore, not justified.
One of the reasons given by the authorities
below for making the disallowance of entire
expenditure was that he was not an
employee. But this aspect, we have already
dealt with while dealing with another ground
relating to disallowance of salary in the later
part of this order and have held in para 12.5
that salary has to be allowed as deduction.
However, the full details and evidence are
not available to quantify as to how much
expenditure had been incurred wholly and
exclusively for the purpose of business.
Expenditure on travelling may vary
substantially from year to year as the
business requirement may not be the same.
In our view, considering the entirety of facts
and circumstances including the past record,
it will be appropriate to disallow on estimate
20% of the expenditure claimed as not
incurred wholly and exclusively for the
purpose of business. We order accordingly.
The order of CIT(A) will be modified to that
extent."
12. Thus, the tribunal has estimated and disallowed 20% of
the foreign travel expenditure on the ground that it may not have
been incurred wholly and exclusively for the purpose of
business. The said amount will be slightly more than Rs.6 lacs.
We fail to understand why and on what ground the Revenue can
claim and submit that the findings recorded by the tribunal are
perverse. No substantial question of law, therefore, arises on
the said aspect.
13. The third issue raised in the present appeal relates to
deletion of addition of Rs.1,14,60,996/- made by the Assessing
Officer under the heading "margin of profit on sale of raw
material on cost price to sister concerns."
14. Learned counsel for the Revenue again submits that the
findings recorded by the tribunal are perverse and factually
incorrect.
15. In the assessment order the Assessing Officer noticed that
raw material purchased by the assessee was transferred to two
sister concerns, namely, Superior Crafts India and Supreme
Exports India. The raw material was transferred on cost basis.
The Assessing Officer held that the respondent assessee had
shown gross profit rate of 28.92% and, therefore, an addition of
Rs.1,14,60,996/- should be made on the ground that the
assessee should have earned profit and charged cost price plus
profit margin of 28.92% from the sister concerns when they
transferred/sold the raw material. The Assessing Officer
rejected the contention of the respondent assessee that to
secure competitive and lower rates, they had purchased raw
material in bulk and sometimes the said raw material was sold to
the sister concerns on cost price. It was further submitted by the
assessee that quota allocation and export orders, sometimes
necessitated and required transfer of raw material to sister
concerns. Sale made was viable, reasonable and did not violate
law of the land. The aforesaid contentions were rejected on the
ground that these averments were general in nature without
documentary evidence. The CIT (Appeals) had affirmed this
addition.
16. The tribunal has, however, deleted the addition, inter alia,
recording as under:
"14.6 On careful consideration of all the
aspects of the issue, we find the stand of the
assessee and the arguments advanced by
the ld counsel quite convincing. The raw
material/semi processed goods had been
transferred to the sister concerns on
commercial expediency as quota had been
received in their names. Had the assessee
not transferred the goods to sister concerns,
the goods could not be exported for want of
quota and the assessee would have incurred
loss and therefore, commercial expediency
is involved in the transfer at lower price. As
all the concerns belonged to the same
group, which are fun by a family, it is quite
prudent to make common purchases in bulk
to save cost and later transfer the goods.
The ld DR has pointed out that the assessee
had its own quota which was sold during the
year. But the assessee has explained that
quota related to some other category of
goods and there is nothing to controvert this
claim. The only issue is that goods have
been transferred at cost price or at a price
much below the market price but there is no
provision in the Act as rightly pointed out by
the ld counsel to make any addition on this
ground. There are provisions in Section
40A(2) as per which in case the expenditure
incurred on account of connected person is
excessive compared to the market value, the
A.O. can make disallowance but there is no
such provision for making any addition on
account of lower sale consideration shown
compared to the market value. The only
ground for making addition could be tax
evasion device but for this burden lies on the
revenue to establish that the transfer had
been made with a view to evade tax. The ld
counsel has pointed out that both the
concerns are in the same tax bracket and
therefore there is no tax evasion on account
of any transfer at lower price. These claims
have not been controverted before us.
Therefore, we do not see any tax evasion
device involved in the transfer. Further the
corresponding value of purchase in the case
of sister concerns have been accepted by
the revenue. There is also no material to
show that the assessee had received any
money over and above the consideration
stated in the books. Under the
circumstances, any addition on account of
lower sale value declared by the assessee is
not justified in our opinion. The order of
CIT(A) is accordingly set aside and the
addition is deleted."
17. On the basis of material on record, the tribunal has
accepted the stand of the respondent assessee. The aforesaid
findings are findings of fact and these cannot be regarded as
perverse.
18. At this juncture, we may now deal with the objection of the
special auditor that certain elements on costs were ignored while
calculating the cost price paid b y the sister concers. It is alleged
that the assessee after purchasing stock had transported the
raw material. Some other expenses were also incurred.
However, while charging the cost price from the sister concerns,
no element of charges/expenses on account of transportation
etc. were charged. The tribunal examined the said aspect and
has held as under:-
"14.5 .....The assessee has challenged the
decision of CIT(A) and it has been argued by
the ld counsel that whatever expenses had
been incurred in connection with the goods
transferred had been duly recovered from
the sister concerns, which was clear from
the pages 904-907 on the paper book-IV. It
has been pointed out that the transfer was
for commercial expediency as had the goods
not been transferred, these were of no value
to the assessee in the absence of quota. It
was also argued that there was no provision
for taxing notional profit and therefore, even
if the goods were transferred at cost or
lesser value, no addition could be made."
(emphasis supplied)
19. Revenue is not able to controvert and contest the said
contention.
20. The last addition subject matter of the present appeal was
under Section 40A(2)(b) of the Act on the ground that
excessive/unreasonable expenditure was incurred on getting
garments fabricated from associate concerns, namely, R.A.
Exports and Sensational Exports. It is accepted and admitted by
the respondent assessee that both of them were associate
concerns. The Assessing Officer also made addition in respect
of payments made to Prakash Fabrication, which is not an
associate concern. The entire payment of Rs.83,48,292 made
to R.A. Exports, Sensational Exports and Prakash Fabrication
was disallowed as if the assessee had not incurred any
expenditure at all on fabrication of garments from the said
concerns. The findings recorded by the Assessing Officer for
the sake of convenience are reproduced below:-
"Besides above payments a sum of
Rs.32,27,883/- as contract payment have
also been paid to M/s Prakash Fabrication
unit in which transactions of similar nature to
related firms have been entered. The above
three firms have been shown as contractors
of the assessee. The assessee was asked
to prove the genuineness of transactions.
Payment to the three firms aggregating to
Rs.83,48,292/- should be treated as Bogus
in view of the fact that above listed two firms
being firms in which partners are
substantially interested and M/s Prakash
Fabrication since all the bills issued by
Prakash Fabrication were as cash memos.
Moreover at any point either during the
course of audit or during the course of
assessment proceedings the assessee could
not substantiate its claim that the work was
actually executed at its business premises or
it has actually incurred such expenditure.
The assesse did not produce any evidence
regarding attendance record of such
employees, PF/ESI records of such
employees, regular entries in the books of
accounts etc. with the help of which we
could have relied upon the contention of the
assessee. Moreover it was noticed from
perusal of page 109 of Part I of Special
Auditor‟s report that ESI & PF contribution of
both employer and employee in respect of
other similar contractor namely Ram
Pravesh Contractor (Babu Finishing) has
been borne by the assessee. It is thus not in
doubt that assessee is bearing such
contributions when the similar contract was
bonafide.
Also, as per Page 199-204 of Part-II of the
Audit Report, the auditors has mentioned
various points which were duly supported
with the documentary evidence, which
proves that no records were placed on
record by the assessee for claiming the
genuineness of such expenditure. In view of
this, the entire amount of Rs.83,48,292/-,
being bogus in nature, is added back to the
income of the assessee u/s 37(1) of the IT
Act.
ADDITION OF Rs.83,48,292/-"
21. The said disallowance, it is apparent, is not under Section
40A(2)(b) as stated in the grounds of appeal by the Revenue but
the Assessing Officer had treated the said expenses as non
genuine or as bogus expenditure. The aforesaid addition was
affirmed by CIT (Appeals).
22. The addition has been deleted by the tribunal, inter alia,
observing as under:-
"24.7 We have perused the records and
considered the rival contentions raised by
both the parties. Dispute is regarding
disallowance of fabrication charges paid to
M/s.R.A. Exports and M/s. Sensational
Exports, which are related to the assessee
and to M/s. Prakash Industries, totaling
Rs.8348292/-. The special auditor had
reported that there were no goods receipt
note (GRN) or challans made regarding
receipt and dispatch of these goods. The
bills in respect of these payments had been
issued serially and entered on computer
separately. There were also several cases
of cash payment. The assessee has
explained that payments were for supplying
labour to the assessee for doing the stitching
job at factory premises as per the conditions
imposed by the foreign buyer. The A.O.
however, disallowed the entire claim treating
the same as bogus on the ground that there
was no evidence produced that the job had
actually been done at factory premises as
there was neither attendance record nor
there was any record for deduction of PF
and ESI in respect of employees. The
assessee has explained to CIT(A) that there
was no record of dispatch of goods as the
job had been done at the factory premises.
CIT(A) however noted that the payment was
not supported by any bills and vouchers and
there was no record of labour maintained.
There was also no agreement regarding
supply of labour. He further observed that
the payments had been made for engaging
labour but the expenditure was declared
under the head „processing charges‟. No
evidence had been produced either before
the A.O. or at the appellate stage to show
that evidence regarding processing charges
had been produced before the special
auditor. CIT(A) therefore concluded that the
assessee did not discharge onus that the
payment had been made wholly and
exclusively for the purpose of business and
accordingly confirmed the disallowance.
24.8 The ld counsel has reiterated the
earlier stand before us that no GRN or
challans was required as the goods were
fabricated at the factory premises. The
attendance of labourers was required to be
made by the contractor and not the
assessee. It was also pointed out that
violation of the provisions of PF and ESI Act,
could not be made the basis for
disallowance. The ld counsel also submitted
that both the special auditor as well as the
A.O. had raised query only in relation to
section 40A(2)(b) and 40A(3). The
assessee had never been asked to prove
the genuineness of transaction. No
disallowance under the provisions of section
40A(2)(b) could be made as there was no
material before the A.O. to show that
payments were excessive compared to the
market value. As for the cash transactions,
the auditors had not reported the same tin
the audit report as the individual payments
did not exceed Rs.20,000/-. As the payment
for labour had been made in connection with
fabrication, the expenditure had been
booked under the head „purchase fabrication
account‟. The assessee had filed copy of
account of the parties as well as
confirmation and the parties were assessed
to tax separately and the payments had
been made by cheques. He also referred to
comparative chart placed at page 1290 of
paper book-IX to show that no disallowance
on this account had been made in the
preceding or in the succeeding year.
24.9 We have carefully considered the
matter. We find that the disallowance had
been made mainly on the basis of some
technical defaults noted by the A.O. The
assessee has satisfactorily explained the
absence of GRN or challans, which were not
required as the work was being done at the
factory premises of the assessee. Similarly,
there was no requirement of any attendance
record or deduction of PF & ESI as the work
was being on contract and the workers were
not employees of the assessee. We find
sufficient force in the plea taken by the ld
counsel that the A.O. had not doubted the
genuineness of expenditure as query letter
issued by the A.O. a copy of which is
available at page 279-280 of paper book-I,
makes it clear that the A.O. had asked the
assessee to give justification with respect to
section 40A(2) and 40A(3) only. Section
40A(2) relates to reasonableness of
payments in case the expenditure had been
incurred in relation to connected persona
and Section 40A(3) is regarding cash
payments. The assessee therefore
explained the matter only with respect to
these provisions vide letter dated 2.11.2005
a copy of which has been placed at page
434 of paper book -II. It has also been
claimed that there was no cash payment
exceeding Rs.20,000/- and the ld DR has
produced no material to controvert this
claim. Nor there is any material to show that
the payments made to the associate
concerns were excessive compared to
market value. All these concerns are
assessed to tax and the payments had been
made by cheques. Similar payments for job
work had been made in the earlier years
also as well as in the succeeding year when
no disallowance had been made. Under
these circumstances, any disallowance this
year is not justified. We, therefore, set aside
the order of CIT(A) on this point and delete
the additions made."
23. We fail to understand on what ground and on what basis
the Revenue contends and submits the contention that the
aforesaid findings are perverse. In fact, it is difficult to
appreciate the finding of the Assessing Officer that the entire
expense was bogus or should be disallowed by invoking Section
48A(2)(b). The Assessing Officer did not conduct any
investigation or verification into the reasonableness of the said
expense with reference to payment made to third parties or fair
market charges payable for similar nature of work. The
Assessing Officer also included the payment made to unrelated
concern, namely, Prakash Fabrication while making the said
addition. It is not the case of the Assessing Officer that the
garments were not fabricated or manufactured. Exports of
garments have been made. Revenue is unable to show that the
findings recorded by the tribunal are not supported by material
or evidence. The conclusion reached is after examing a number
of facts. It cannot be said that the factual finding are such that
"no person acting judicially and properly instructed as to the
relevant law" would have reached the same conclusion. Tribunal
has not ignored or excluded relevant evidence or taken into
consideration inadmissible evidence.
24. In view of the aforesaid discussion, we do not think any
substantial question of law arises in the appeal No. 244/2009.
ITA No. 548/2011
25. This appeal by the Revenue pertains to assessment year
2000-01. However, we may notice that the assessment order in
this case was passed on 28th December, 2007, whereas the
assessment order for the assessment year 2002-03 was passed
on 10th November, 2005. The Assessing Officer in this case had
rejected the books of accounts. The reasons/findings for
rejecting the books of accounts as discernible from the
assessment order are:-
(1) Stock register was not produced and, therefore, stock
details could not be verified.
(2) The audit report in form of No. 3CB and 3CD column 28(b)
was left blank with the remarks "in view of the large number of
items it is not possible to give such details". The said column
pertains to information in respect of qualitative details of raw
material, semi finished products etc.
(3) The assessee had not submitted working notes for
preparation of inventory of stock and in the absence of the
same, comparative qualitative details cannot be verified.
(4) The assessee had insured the stock at a higher value than
the figures of the closing stock quoted by the assessee. The
assessee was not able to satisfactorily explain the reason for
insurance at a higher value.
(5) The assessee had entered into transactions of Rs.1.56
crores (approximately) with its sister concern, namely, Superior
Crafts (India). [In this year, no material was transferred/sold to
the sister company, namely, Supreme Exports (India)]. As per
the Assessing Officer, there is no reason why the transfer was
on cost basis only and not for earning profit. No direct or
indirect expenses incurred by the assessee were taken into
consideration while computing the cost. No evidence was
brought on record to demonstrate that only raw material was
transferred and not finished or semi finished products. In
absence of stock register, this aspect could not be verified.
(6) Payments were made to contractors R.A. Exports,
Sensational Exports and Prakash Fabrication Unit, but the
assessee had failed to prove the genuineness of services
rendered by the contractors. These transactions should be
treated as bogus as R.A. Exports and Sensational Exports were
firms in which partners were substantially interested. The
respondent-assessee did not produce attendance records,
provident fund/Employees State Insurance records of the
employees engaged by R.A. Exports, Sensational Exports and
Prakash Fabrication Unit and they did not file inward and
outward challans for movement of stock/goods.
26. After rejecting the books of accounts, the Assessing
Officer observed that the G.P. rate declared by the assessee in
the year under consideration i.e. 2000-01, of 23.87% was low.
The G.P. rate for succeeding five assessment years i.e. 2001-
02, 2002-03, 2003-04, 2004-05 and 2005-06 were 19.16%,
28.92%, 22.17%, 38.17% and 23.04%, respectively. He held
that the G.P rate declared for the assessment year 2002-03 was
on the lower side and keeping in view the facts of the present
case, the Assessing Officer applied the G.P. rate of 32% to the
export sales turnover of Rs.41,47,44,473/-. He accordingly
computed the gross profit at Rs.13,27,18,231/- as against
Rs.9,53,19,,175/-.
27. The CIT (Appeals) deleted the said addition. He
substantially relied upon the order passed by the tribunal in the
case of the respondent-assessee for the assessment year 2002-
03, which is subject matter of ITA No. 244/2009. The findings
recorded by him are detailed and extensive. He, in the
concluding paragraph, the CIT (A) recorded as under:-
"3.8 Adverting back to the facts of the
case, it is a fact that books of accounts of the
assesee are audited and no discrepancy has
been pointed out by the AO. The production
results have not been found to be acceptable
to the AO in absence of day to day stock
register. The AO has completely ignored the
substantial increase in the gross profit of the
assessee which itself indicates that the AO
has acted in a very arbitrary and illogical
manner by applying g.p. ratio of a proceeding
assessment year which is well in absolute
terms against normal practice of drawing
conclusions on the basis of comparisons and
common sense. The AO made other
observations also with regard to the reliability
of the book results of the assessee which is
evident from the text of the assessment order.
The observations of the AO indicate
that the AO is inclined to believe that the
assessee has indulged in suppression of
production, stock and its profit but the AO has
not unearthed the suppression. The crucial
fact of a substantial increase in gross profit
ratio as compared to earlier years has been
brushed aside.
3.9 In the light of the judicial authorities
cited in preceding paragraphs, and
particularly the decision of the Hon‟ble ITAT,
Delhi in its order in appellant‟s own case for
A.Y. 2002-03 on the similar issue with
identical facts and circumstances, as
reproduced above; the estimation of gross
profit on the basis of a future year in view of
absolute facts is liable to be rejected being
arbitrary, illogical and not in conformity with a
logical practice of drawing conclusions on the
basis of precedence of previous trading-
results. Therefore, the trading addition of
Rs.3,73,99,056/- made by the AO is deleted."
28. Aggrieved, the Revenue preferred an appeal before the
tribunal on the aforesaid aspect. The tribunal vide order dated
27th August, 2010, dismissed the said appeal. The tribunal has
affirmed and agreed with the findings recorded by the CIT
(Appeal). The contention of the learned counsel for the
appellant is that the findings of the tribunal are perverse. She
further submits that once the stock register was not maintained
and there was fall in G.P. rate as held by the Assessing Officer,
rejection of books of accounts is justified and proper. In this
regard, she relies upon decision of Allahabad High Court in
Bimal Kumar Anant Kumar Vs. Commissioner of Income-
Tax [2007] 288 ITR 278 (All) and this Court in Action
Electricals Vs. Deputy Commissioner of Income-Tax (2002)
258 ITR 188 (Del).
29. In Bimal Kumar Anant Kumar (supra), a Division Bench
of Allahabad High Court referred to Section 145 of the Act and
Court decisions and observed that the Assessing Officer is
entitled to compute income in his own way when he is of the
opinion that income cannot be properly deduced from the books
of accounts. It was noticed that the gross profit declared by the
assessee was too low in comparison to other assessees in the
same trade. The Assessing Officer had accordingly compared
the gross profit rate and made an ad-hoc addition of Rs.15,000/-
, which was reduced to Rs.13,000/- by the tribunal. Looking at
the factual matrix of the said case, the questions of law were
answered in favour of the Revenue and the appeal filed by the
assessee was dismissed.
30. In the case of Action Electricals (supra), the exact
observations of the High Court read as follow:-
"We are unable to persuade ourselves to
agree with learned counsel for the assessee.
Section 145(2) of the Act empowers the
Assessing Officer to make a best judgment
assessment when he is not satisfied about
the correctness or completeness of the
accounts of the assessee. It is not possible to
categorise various types of defects which may
render rejection of books of account of an
assessee on the ground that the accounts are
not complete or correct. Each case has to be
considered on its own peculiar facts, having
regard to the nature of business. Though it is
true that the absence of stock register, in a
given situation, may not per se lead to an
inference that the accounts are incomplete or
false the absence of such a register, coupled
with other factor, like fall in profits, etc., may
lead to an inference that the accounts are not
correct. As noticed above, in the instant case,
non-maintenance of stock register, coupled
with the fact that unaccounted sales were
detected during the course of search, in our
opinion, is a relevant factor to sustain the
view of the Assessing Officer. We do not find
any legal infirmity in the view taken by the
Tribunal that the disclosures/surrender of Rs.
5 lakhs by the assessee at the time of search,
as its unaccounted sales, constitutes
sufficient material for the Assessing Officer to
base his satisfaction that the books of
account of the assessee are not correct and
complete. In so far as the estimation of the
sales/ gross profit rate is concerned, it being a
best judgment assessment, based on past
years results cannot be said to be arbitrary."
31. A careful reading of the aforesaid observations
indicates that the same do not support the contention of the
Revenue. The High Court has clearly observed that
absence of stock register, in a given situation, may not per se
lead to an inference that the accounts were incomplete or
false but this issue has to be examined keeping view the
other factors, which include fall in gross profit rate. All factors
have to be examined and taken into consideration and then
alone the Assessing Officer can reject the books of accounts.
In the said case there was evidence of unrecorded sales
outside the books.
32. Punjab and Haryana High Court in the case of
Pandit Bros. v. CIT (1954) 26 ITR 159 has elucidated and
examined the said question and it was opined as under:-
"..... Again, the fact that there is no stock
register only cautions him against the falsity
of the returns made by the assessee. He
cannot say that merely because there is no
stock register the account books must be
false. The account books in this case were
accepted as correct and disclosing a true
state of affairs. The absence of one register
cannot amount to material and there must be
material before the Income-tax Officer before
he can apply the provisions of the proviso to
Section 13. Again, we find that the Income-tax
Officer did not adopt any basis for the
increase made by him.
XXXXXX
....In the second place, even if such a finding
were to be implied from his order it cannot be
said that there was material before him which
would enable him to come to this finding. The
fact that the profits appeared to him to be
insufficient and the fact that there was no
stock register maintained by the assessee are
not in my view materials upon which such a
finding can be given, but these are
circumstances which may provoke an inquiry.
The Income-tax Officer must discover
evidence or material aliunde before he can
give such a finding."
33. This decision was referred to by the Supreme Court in the
case of S. N. Namasivayam Chettiar v. CIT (1960) 38 ITR 579,
588 (SC) and it was explained:-
"....It was rightly argued that the power to
compute profits under the proviso to s. 13
arises only where no method of accounting
has been regularly employed by the assessee
and where the method employed such that
the income, profits and gain cannot properly
be deduced therefrom. It means that the
method adopted by the assessee must prima
facie prevail where it is regularly employed,
though the Income-tax Officer can resort to
the proviso if the method is such that true
profits cannot be correctly determined
therefrom. In other words, even if the
assessee has regularly employed a method of
accounting it can be discarded under the
proviso if the method does not show correct
profits of the year.
XXXXXX
.... Khosla, J. (as he then was) [in Pandit
Bros.] there said 'There is no finding that
there was material before the Income-tax
Officer to lead him to the conclusion that a
proper statement of income, profits and gains
could not be deduced from the material
placed before him. All he said was that the
profits appeared to be somewhat low and
there was no stock register'. The want of a
stock register was, in that particular case, not
a very serious defect because the account
books had been found and accepted as
correct and disclosed a true state of affairs. It
cannot therefore be said that that case laid
down as a proposition of law that the want of
a stock register by which a proper check
could be made was not such a serious defect
as to make the proviso to s. 13 inapplicable.
The importance of such register was pointed
out by the Nagpur High Court in Ghanshyam
Das Permanand v. Commissioner of
Income-tax, C. P. & Berar ( 1959 (21) ITR
79, 81). In cases such as the instant case, the
keeping of a stock register is of great
importance because that is a means of
verifying the assessee's accounts by having a
'quantitative tally'. If, after taking into account
all the materials including the want of a stock
register, it is found that from the method of
accounting correct profits of the business are
not deducible, the operation of proviso to s.
13 of the Income-tax Act would be attracted,
Bombay Cycle Stores Company Ltd. v.
Commissioner of Income-tax ( 1958 (33)
ITR 13 ). It may also be added, as was held
by this Court in Commissioner of Income-tax
v. MacMillan & Co. (1958 (33) ITR 182, 197),
that the Income-tax Officer, even if he accepts
the assessee's method of accounting, is not
bound by the figure of profits shown in the
accounts. It is for the Income-tax Authorities
to consider the material which is placed
before them and, if, after taking into account
in any case the absence of a stock register
coupled with other materials they are of the
opinion that correct profits and gains cannot
be deduced, then they would be justified in
applying the proviso to s.13."
34. The Supreme Court had another occasion to examine the
said question in the case of Chhabildas Tribhuvandas Shah v.
CIT (1966) 59 ITR 733 (SC) and it was held:-
".... What we have to see is whether the
finding of the Appellate Tribunal that the
income, profits and gains cannot properly be
deduced from the method of accounting
employed by the appellant is based on any
material. The Appellate Tribunal has given
two reasons for its conclusions. The first
reason is that the appellant was doing
business in the main on wholesaler basis and
there should have been no difficulty in tallying
quantities in respect of major items of trading
account. This certainly is a relevant
consideration. In the absence of such a tally,
the next reason given is that the fall in the
margin is all the more difficult to explain in
view of the fact that the appellant also had a
quota of imports worth about Rs. 8, 00, 000
which would have given them a handsome
margin of profit. This again is a relevant fact
and it is well-known that imported goods fetch
a very handsome margin of profit.
Accordingly, we hold that there is material in
support of the impugned finding of the
Appellate Tribunal. We may point out that we
are not concerned with the correctness of the
conclusion and we are only concerned with
the question whether there is any material in
support of the finding of the Appellate
Tribunal. In cases involving the applicability of
the proviso to section 13, the question to be
determined by the Income-tax Officer is a
question of fact, namely, whether the income,
profits and gains can or cannot be properly
deduced from the method of accounting
regularly adopted by the assessee."
35. Recently in Sanjeev Woolen Mills Vs. Commissioner of
Income-Tax [2005] 279 ITR 434 (SC), it was observed by the
Supreme Court that the true trading result of business for an
accounting period cannot be ascertained without taking into
account the stock-in-trade at the end of the accounting period. It
was held that valuation of closing stock cannot be dispensed
with. The true purpose of crediting the value of unsold stock is to
balance the cost of those goods entered on the other side of the
accounts at the time of purchase, so that cancelling of the
entries relating to the same stock from both sides of the
accounts would leave only the transactions on which there have
been actual sales in the course of the year showing the profit or
loss actually realized. In the said case, the assessee was
valuing the opening stock and closing stock by applying different
parameters and the profit disclosed was only notional.
36. Recently this Court in Commissioner of Income Tax Vs.
Jas Jack Elegance Exports [2010] 324 ITR 95 (Delhi) had
occasion to deal with the said contention and it was observed as
under:-
"This is not the case of the Revenue that
the assessee had not followed either cash or
mercantile system of accounting stipulated in
sub-section (1) of section 145 of the Act. This
is also not the case of the Revenue that the
Central Government had notified any
particular accounting standards to be followed
by manufacturers and exporters of
readymade garments. Hence, the second part
of sub-section (3) of section 145 does not
apply to this case. As noted by the
Commissioner of Income-tax (Appeals) as
well as by the Income-tax Appellate Tribunal,
the Assessing Officer had not pointed out
any defect in the account books maintained
by the assessee, which, admittedly, were
produced before the Assessing Officer for his
consideration. This is also not the finding of
the Assessing Officer that the account of the
assessee was not complete. No provision
either in the Act or in the rules requiring an
assessee carrying business of this nature, to
maintain a stock register, as a part of its
accounts has been brought to our notice. As
regards non-production of stock register, the
assessee has given an explanation which has
been accepted not only by the Commissioner
of Income-tax (Appeals) but also by the
Tribunal and both of them have given a
concurrent finding of fact that maintaining
stock register was not feasible considering
the nature of the business being run by the
assessee which was engaged in the business
of manufacturing readymade garments by
purchasing fabric which was then subjected
to embroidery, dyeing and finishing and then
converted into readymade garments by
stitching. Section 145(3) of the Act therefore
could not have been applied by the Assessing
Officer to the present case."
37. A similar view has been taken by the Gauhati High Court
in Swapna Rani Sarkar Vs. Commissioner of Income Tax
and Others (2010) 320 ITR 70 (Gauhati) and it was observed
that no law has been laid down that if stock register is not
maintained, the only consequence would be rejection of the
books of accounts. Rajasthan High Court in the case of
Commissioner of Income Tax Vs. Inani Marbles P. Ltd.
(2009) 316 ITR 125 had reiterated the aforesaid principle.
38. Thus, the contention of the Revenue that stock register
was not maintained and the relevant column of the auditor‟s
report record indicate absence of the stock register, justify
rejection of the books of accounts, cannot be accepted.
39. It is now important and relevant to notice and examine the
other contentions raised by the Revenue for rejecting the books
of accounts and the cumulative effect in the absence of the
stock register. The other grounds and reasons given by the
assessing Officer were specifically dealt with and examined by
the tribunal in their order for the assessment year 2002-03 and
no merit in the same was found. The contention with regard to
the sale to sister concerns has already been examined above in
ITR 244/2009 and the contention of the Revenue has been
rejected. Similarly, the objection raised with regard to the
payments made to the contractors such as R.A. Exports,
Sensational Exports and Prakash Fabrication Unit has not been
accepted. The aforesaid aspects do not constitute a ground for
rejection of books of account or indicate inability of the
Assessing Officer to compute true and correct profits. The same
were in nature of specific disallowances. We may further notice
that the payments made to the contractors, transfer of raw
material to sister concern have been made subject matter of a
separate additions by the Assessing Officer himself in the
assessment order for the year in question. He was able to
examine the said entries and made specific additions. On a
perusal of the order passed by the Assessing Officer, it is
evident that the rejection of books is based upon
reasons/grounds stated in the assessment order for the
assessment year 2002-2003. In the said assessment year,
there was a special audit. The special auditor did not report and
state that it was not possible to decipher and compute
income/profits from the books of account. The special auditor
had examined the books of account, vouchers, invoices etc., but
did not suggest that books of accounts should be rejected. The
Assessing Officer for the assessment year 2002-03 did not
reject the books of accounts. In the said year, the Assessing
Officer did make additions/disallowances, but not after rejecting
the books of accounts. In the said assessment year, similar
disallowance and additions were made for identical
grounds/reasons given by the Assessing Officer as in the
assessment year 2001-02. Therefore, we do not agree with the
counsel for the Revenue that rejection of books of accounts was
justified and findings recorded by the tribunal are perverse.
Accordingly, we do not think that on this aspect any substantial
question of law arises for consideration.
40. The next contention raised by the Revenue pertains to the
payments made to the contractors such as R.A. Exports,
Sensational Exports and Prakash Fabrication Unit. The
Assessing Officer has recorded that the assessee was asked to
prove genuineness of the transactions for which payment was
made to the contractors and whether the work was actually
executed in the business premises of the assessee and infact
the expenses were incurred.
41. For the reasons given in ITA 244/2009, we do not think
that any substantial question of law arises for consideration on
this aspect. We may only note that there is no finding of the
Assessing Officer that no work was done or extra or additional
payment above/more than the market rate were made to R.A.
Exports, Sensational Exports and Prakash Fabrication Unit. The
Assessing Officer did not invoke Section 40A(2) (b) of the Act.
42. We do not think that the order passed by the tribunal is
perverse and, therefore, requires interference.
ITA 547/2011 & 615/2011
43. These appeals relate to the assessment years 2005-06
and 2001-02, respectively. The Revenue is aggrieved in these
two appeals as the tribunal has upset the finding of the
Assessing Officer that the books of accounts should be rejected
and the profit should be calculated by applying G.P. rate of 32%.
The second contention raised by the Revenue is again with
regard to the payment made to the contractors, namely, R.A.
Exports, Sensational Exports and Prakash Fabrication Unit.
44. The observations and findings given in ITA 548/2011 on
the aforesaid contentions are equally applicable to the facts of
the present case.
45. In ITA No.547/2011, which relates to the assessment
year 2005-06, another issue relating to addition of Rs.71,949/-
has been raised. The Assessing Officer noticed that the
opening and closing balance of some of the creditors were same
and no business transactions had taken place during the year in
question. He accordingly added back the said amount to the
income as unverified creditors. The CIT (Appeals) deleted the
said addition holding that there is no basis for the Assessing
Officer to make the said addition. Merely because the
assessee had no transactions with some creditors and their
opening and closing balances remained the same, cannot be a
ground to add the said amount. The tribunal has affirmed the
said finding. We do not see any reason to interfere with the said
finding.
In view of the aforesaid discussion, the appeals are
dismissed holding that no substantial question of law arises for
consideration.
SANJIV KHANNA, J.
R.V. EASWAR, J.
MARCH 06, 2012
VKR/NA
