TaxTMI 
TaxTMI 
2008 (9) TMI 617
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Assessing Officer on scrutiny of the account found that assessee has shown the total sales of Rs. 1,80,93,419 and has shown payment of commission at Rs. 22,03,901. On further probe, the learned Assessing Officer found that assessee had overdraft account with the Syndicate Bank, Azadpur, Delhi. He has shown the liability of O.D. Account at Rs. 99,51,933 as on 31-3-2001. The learned Assessing Officer called for information about the stock of hypothecation with the bank under section 133(6) of the Act. The bank in response to the Assessing Officer's query submitted that M/s. Standard Plastic for the month of March, 2001 has shown the value of stock hypothecated with the bank as on 31-3-2001 at Rs. 2,06,80,349. Whereas in the account, the assessee has shown purchases in the month of March 2001 at Rs. 8,03,275 and sales at Rs. 8,07,263. The value of closing stock alleged to have been hypothecated with the bank was not appearing in the closing stock disclosed by the assessee for the purpose of the Income-tax Act, 1961. Therefore, learned Assessing Officer confronted, the assessee as to why he has not disclosed the value of stock hypothecated with the bank in the books of account. In re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....57 ITR 451 (Raj.) and CIT v. G. Anandarajan [1997] 228 ITR 664 (Ker.) rejected the contention of the assessee and recorded a finding that assessee has reported a higher stock to the bank authority which has been insured by him with the Insurance Company by making a payment of Rs. 5,030. In the opinion of the Assessing Officer, assessee has suppressed the stock value and, therefore, he made an addition of Rs. 2,06,80,349. 4. On appeal, learned CIT (Appeals) appreciated the contention and deleted the addition. The relevant observations of learned CIT (Appeals) read as under: "I have carefully gone through the judgments cited by both the appellant and the Assessing Officer in support of their stands. I find that the facts and circumstances of the appellant's case squarely fit into and are identical to the facts considered by their Lordships of the Madras High Court in their decision in the case of CIT v. Sri Padmavathi Cotton Mills 236 ITR 340. Here their Lordships upheld the decision of the Tribunal. The Tribunal came to the conclusion that the closing stock declared in the return filed by the assessee was based on the books of account and it should be accepted rather ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt. This statement was submitted with a view to avail over draft facilities from the bank. He also took us through page No. 160 of the paper book wherein the copy of the written submissions submitted by the assessee to the Assessing Officer is available. He relied upon these submissions. He further contended that assessee has filed trading account, profit and loss account, balance sheet audit report obtained under section 44AB of the Act along with the return. The Assessing Officer was unable to point out any defect in the details maintained by the assessee. He simply relied upon the statement of the stock given to the Bank. The assessee took a plea before the Assessing Officer that this statement is a manipulated one, it does not reflect its true affairs and, therefore, it should not be relied upon. The assessee has submitted the list of creditors and debtors appearing in the balance sheet prepared for the purpose of bank and submitted to the bank authority. If the Assessing Officer has to reject the contentions of the assessee that stock statement submitted to the bank was not genuine then he should have verified from the creditors, etc. Assessing Officer did not take step in tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... his estimate or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of assessee and require to seek explanation of the assessee qua those defects. If the assessee failed to explain the defects then on the basis of the book results, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income. Where a stock account is not maintained and reconciliation is not possible in between the aggregate of stock on opening date and stocks purchased with the aggregate of stock sold and available in closing stock, in such cases if the gross profit is low in comparison with past years or in competitive business, then Assessing Officer can reject the book results and estimate the income. Similarly, if discrepancies between the stock as per stock register and as per declaration given to the bank are established and assessee failed to explain such discrepancies then Assessing Officer would be in his realm of powers to reject the book results and estimate the income. Thus, in case of a discrepancy between the stock statement furnis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....books, assessee has filed the relevant details. The Assessing Officer neither inquired into the genuineness of the transactions appearing in the books nor pointed out any defects on those details. He simply harp upon the information supplied by the bank and substituted them over the books as if those statements are only to be relied upon as an alternative of the assessee's books of account. Had the assessee not disclosed the details of alleged bogus sundry credits, alleged purchases and his stand that statement given to the bank was a manipulated one? We could appreciate the stand taken by the Assessing Officer also but instead of verifying the explanation of the assessee, he straightway rejected it. There can be truth in the explanation of the assessee. The action on the part of assessee in manipulating the stock statement while disclosing it to the bank may be branded as a immoral or may be infringing any other law. But can substandard moral activity denude the assessee to say that he has no closing stock in his accounts for the purpose of making a disclosure under the Income-tax Act, 1961. It is the Assessing Officer who has to demonstrate that assessee has an income chargeable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the CIT (Appeals) contended that as far as identity of the recipient is concerned, it may not be in doubt. Mode of payment may also not be in doubt. The grievance of the Assessing Officer is that the assessee failed to provide evidence exhibiting the nature of service rendered by the recipient. He, therefore, contended that learned CIT (Appeals) has erred in deleting the disallowance. On the other hand, learned counsel for the assessee relied upon the order of the CIT (Appeals). He pointed out that the assessee is in the business of purchase and sale of plastic dana. He was working as an agent of Reliance Industries. These persons have introduced the clients to whom sales have been made. Such type of commission was paid in earlier years and it was allowed to him. The commission was paid in the subsequent years also. This has also been allowed to the assessee. 12. We have duly considered the rival contentions and gone through the records carefully. In order to claim any expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expenses or personal expenses laid out and spent wholly and exclusively for the purpose of business, one's c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cer is that there was no agreement for payment of commission. We are of the view that it is for the assessee to carry out his business. If he has an understanding with certain person then it may not be very much necessary to enter into an agreement. The assessee as well as the payees are withstanding to their stand. There is no variance in their conduct. As far as the allegation of failure to produce demonstrative evidence against the assessee is concern, one has to see the nature of business. The assessee is in the business of sale of plastic dana. The agents are required to send customer for purchase of dana. They can be introduced on phone also. There may not be any demonstrative evidence in certain circumstance but that does not mean that expense are not incurred. The assessee has shown commission income on sale of plastic dana, it suggest that he has carried on business. Thus, all these circumstances are to be seen before making the disallowance. In such circumstances, the disallowance cannot be made. The learned 1st Appellate Authority has appreciated the facts and circumstances and deleted the disallowances. We do not find any merit in this ground of appeal also. It is rejec....