TaxTMI 
TaxTMI 
1986 (8) TMI 118
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....erifiable. (ii) Shortage claimed at 545 qtl. 37 kgs. 600 gms. was not open to verification. (iii) There was difference of 26,136 bags as per the bardana tally which remained unexplained. In view of these discrepancies/defects he held that provisions of s. 145(2) were applicable. The ITO, therefore, proposed an addition of Rs. 2 lakhs in the trading a/c keeping the above defects/discrepancies in view. Since the variation in the returned income and the income proposed to be assessed was more than Rs. 1 lakh, the ITO prepared the draft assessment order and forwarded the same to the assessee. After assessee's objections were received, a draft assessment order along with objections was referred to the IAC of IT under s. 144B of the Act who approved the addition of Rs. 1 lakh as against the addition of Rs. 2 lakhs proposed by the ITO. Accordingly the ITO made an addition of Rs. 1 lakh while framing the assessment under s. 143(3) read with s. 144B of the Act. 5. Before considering the addition it would be worth-while to state in brief the material relied upon by the ITO. Referring to unverifiable nature of the sales the ITO pointed out that the assessee had sold goods worth Rs....
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....O that it had about 30,000 rejected bags in the opening stock and purchased a further quantity of 40,000 bags which became available to it from the new purchases of cotton seed husk. The assessee had thus 74,000 bags of smaller size which were used for preparing 49,000 serviceable bags of bigger size and this accounted for the shortage of 25,000 bags approximately. The assessee's explanation was not accepted by the ITO because the purchases and sales were made in bags of smaller sizes and, therefore, there was no question of converting the smaller bags into bigger size. According to the ITO, the excess shortage in bardana therefore, remains unexplained. Taking the cumulative effect of the above discrepancies ultimately addition of Rs. 1 lakh was made in the trading account. While making the above additions, the ITO also took note of the fact the assessee's premises were surveyed under s. 143(3) of the Act by the AID(INT.) Patiala, on 20th Jan., 1984. At the time of survey, stocks of the firm were found in excess of the stocks as per books of accounts to the extent of Rs. 60,000. Similarly excess cash to the tune of Rs. 60,000 was also found. The assessee, therefore, surrendered a s....
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....as to make the total debit of Rs. 18,000. He, therefore, urged that it was a device to square up the above account against the excess sales made to the said party. Regarding shortages he submitted that the same were not verifiable and in fact there could be no shortage in the manufacturing process in the nature of the business done by the assessee. He further pointed out that the explanation regarding shortage in the bardana account was unverifiable. He, therefore, supported the orders of the authorities below. In relation to the alternative arguments he submitted that the additions on account of defect pointed out by the ITO were made at Rs. 1 lakh while the disclosure made by the assessee was only at Rs. 40,000 for the assessment year under appeal. He, therefore, urged that the addition of Rs. 1 lakh made by the ITO and sustained by the CIT(A) deserves no interference. 9. We have given our careful consideration to the rival submissions. The ITO has discussed in his order the various discrepancies on account of which the addition has been made in the trading account. We have reproduced the same in earlier part of this order. We have reproduced the arguments of the parties at le....
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....assessment year under appeal is lower as compared to earlier years, the only other inference would be that excess stock found at the time of survey was on account of purchases from undisclosed sources. These purchases would either be out of suppressed sales not recorded in the books of accounts or from some undisclosed sources. We also notice that the explanation by the assessee that bigger bags were prepared out of the smaller bags resulting in shortage of bags is also not verifiable. At the same time, some shortage in bardana also cannot be ruled out. Taking into consideration the totality of the circumstances, in our opinion, it would be reasonable if addition to the extent of Rs. 60,000 is sustained. This will also include surrender of Rs. 40,000 made by the assessee itself. The assessee will be entitled to relief of Rs. 40,000 on this account. 11. The fourth ground of appeal is against the disallowance of interest and salaries paid to the partners without considering the applicability of s. 40A(2), i.e. the reasonableness of the expenditure incurred. The ld. Counsel for the assessee sought to amend the above ground of appeal as under: "That the ld. ITO erred in law in di....
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.... 13,900 on 29th May, 1980 direct into the assessee's bank account looked funny. Another course would have been that if the above party was to pay Rs. 13,900 and it had already paid a sum of Rs. 8,000 earlier, only a balance amount of Rs. 5,900 should have been paid. Since these two credits were not verifiable from the books of accounts of the party, the ITO treated the same as assessee's income from undisclosed sources. The CIT(A) has upheld the addition in the absence of any confirmation from the creditor about the purchases made by it and also about the deposits. 13. Before us the same arguments have been repeated by the ld. Counsel for the assessee. It has further been stated that entries were not in the nature of cash credits but advances against sales of goods by the appellant which were ultimately adjusted on 29th May, 1980 by crediting the sale account by Rs. 13,900 and debiting the party. It has also been stated before us that the assessment has been completed in utter violation of the principal of natural justice as the appellant was required to reply within a short period of three days the numerous credits. It has also been stated that the addition on accounts of cash ....
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....miserably failed in discharging this onus. We have therefore, no hesitation in sustaining the addition of Rs. 21,900 on account of unexplained credit in the account of M/s. Mehar Chand & Co., Morinda. 2. M/s. Bharat Machinery Story, Hissar As sum of Rs. 2,000 has been credited in the account of the above party on 9th Nov, 1980: as per the said party's books, the debit is on 24th Nov, 1980. of Rs, 4,000. The assessee's explanation was the creditor had advanced a sum of Rs. 2,000 to the assessee firm on 19th Nov., 1980 against purchase of machinery scrap. A further sum of Rs. 1,200 was received on 21st Nov., 1980 when the party came to take delivery of scrap. The balance amount of Rs. 800 was given on 24th Nov., 1980 when the goods were received by the party at Hissar. The ITO observed that income from sale of scrap is not reflected in the profit and loss account. In the absence of any positive evidence in respect of the cash credits, he held that the assessee had introduced a sum of Rs. 2,000 on 19th Nov., 1980 from out of undisclosed sources and withdrew the same after it had received Rs. 4,000 on 24th Nov., 1980. Before the IAC of IT, in proceedings under s. 144B it has stated ....
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....to prove the sources of the cash credit appearing in its books of accounts. 15. Before us the same arguments have been repeated as were made before the lower authorities in addition to the arguments as made in the case of Mehar Chand & Co., Morinda. We have already rejected the contention made before us in the case of M/s Mehar Chand & Co., Morinda, in the absence of any evidence about the deposit from the creditors. The authorities below were justified in treating the same as income from undisclosed sources. Under s. 68 the onus is upon the assessee to prove the source of the cash credit. It has miserably failed to prove the same. The result of enquiries made by the ITO has not been used against the assessee. Therefore, the assessee cannot have a grouse to say that the statement recorded by the Inspector was not supplied to it. We do not therefore, find any justification to interfere with the order of the CIT(A) on this account also. 4. Shri Ram Kishan Chankkiwala The ITO found a cash credit of Rs. 5,000 in the above account on 18th Dec., 1980. This was stated to have been received as advance against the goods sold to the above party on 23rd March, 1981. The ITO has ob....