SMT. NILAM JAIN,ALWAR vs. INCOME TAX OFFICER, WARD-2-1, ALWAR

In ground no. 1 briefly the facts of the case are that the assessee is a proprietor of M/s Gupta Flour and Oil Industries in New Anaj Mandi, Alwar and derives income from trading activities in agricultural commodities like food grains, oil seeds and pulses besides dealing in Kachi Adhat and earning commission on sale. She filed her return of income on 21.11.2014 declaring income of Rs.4,91,100/-. During the assessment proceedings, the AO noted that the various commodities like Bajra, Arhar, Chana, Gawa, Barley, Sarso, Tilli, Wheat, etc. have different quality and value but the stock register is maintained only quantity wise and not quality wise. He further noted that even the stock chart filed by the assessee does not contain the quality wise details. In the audit report, the auditors have mentioned that valuation of closing stock is on cost basis. Moreover, some purchases are made in cash. Accordingly, AO issued show cause notice as to why the books of accounts should not be rejected and the provisions of Section 145(3) should not be invoked. In response, the assessee submitted that the quality of the commodity changes with the weather, dryness of moisture contents, insects in the goods, etc. so maintenance of quality wise stock register is not possible. The books of accounts are maintained in such a way that genuine profit can be easily deduced. She also explained the modus operandi of Kachi Adat. The AO however did not accept the contention of the assessee and stated that the assessee has not maintained quality wise stock register. He further stated that the market rates also effect the rates but it cannot be said that the commodities purchased were of similar quality for which he referred to different purchase rates on different dates for commodities such as Bajra, Chana, etc. Thus, he held that the value of closing stock should be computed as per variety and quality of the respective commodities. He further held that the valuation of stock is not correct by relying on the transaction of bardana which was sold for Rs.7.72 per bag whereas it was purchased for Rs.15.20 per bag and the opening stock was taken at Rs.12 per bag. Accordingly, he held that the provisions of Section 145(3) are applicable and relied on the decision of British Paints India Limited (SC) 188 ITR 44 and made lump sum trading addition of Rs.3 lakhs. On appeal, the Ld. CIT(A) stated that the AO is justified in rejecting the books of accounts u/s 145(3) of the Act However, the addition of Rs.3 lakhs on lump sum basis is not justifiable. He held that as some of cash purchases are not supported by evidence and the valuation of bardana is not correct, an addition of Rs.1,50,000/- is reasonable to cover the discrepancies. Against the said findings, the assessee is in appeal before us.

During the course of hearing, the ld. AR submitted that assessee is a registered dealer of Krishi Upaj Mandi, Alwar and trades in commodities like food grains, oil seeds, pulses, etc. besides dealing in Kachi Adhat and earning commission. The assessee has maintained day to day books of accounts including the stock records. These accounts are duly audited. In fact, the assessee has dealt in eleven items i.e., Arhar, Bajra, Bardana, Barlay, Chana, Gwar, Pashuahar, Sarso, Sutali, Tilli and Wheat. The complete quantity tally of these items traded by the assessee is available on record. All the entries in the trading account i.e., Opening stock, purchases, sales and closing stock is fully supported by the quantity and purchase and sales invoice. No specific defect / discrepancy has been pointed out by the AO.

The ld. AR further submitted that the AO has rejected the books of accounts on the ground that assessee has not maintained the quality wise stock register. It may be noted that there is no specific quality of the items dealt by the assessee. The rates of the commodity fluctuates on day to day basis and also on account of karda, moisture, etc. in the quantity purchased. Nobody in this trade maintains stock register in the manner desired by the AO. The AO himself has accepted that market fluctuation affects the rates. So far as bardana is concerned, assesse does not trade in bardana. It is consumed in packing of the agriculture produce. However, to keep a record of bardana, quantitative details are maintained. The amount shown under the heading sales in bardana account is the sale of used bardana and therefore, it has fetched a rate of Rs.7.72/- per bag. The opening stock of bardana was valued at Rs.12/- per bag whereas purchases made during the year is Rs.15.20/- per bag. Accordingly, the closing stock of bardana is valued at Rs.15.11/-per bag. Thus, the valuation of bardana is at purchase cost. Hence, without pointing out any discrepancy in the quantity record, the books of accounts cannot be rejected so as to make trading addition.

The ld. AR further submitted that the Ld. CIT(A) without any basis has confirmed the rejection of books of accounts but reduced the trading addition to Rs.1,50,000/- without any basis. In fact, the G.P rate has increased during the year from 0.64% to 0.94%. Therefore, on account of the so called discrepancies of any significance, trading addition cannot be made. In support, Reliance was placed on the following decisions:- • PCIT vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj.) • Malani Ramjivan Jagannath vs. ACIT (2009) 316 ITR 120 / 207 CTR 19 (Raj.)

The ld. DR is heard who has relied on the orders of the authorities below.

We have heard the rival contentions and perused the material available on record. Without going into the merits of rejection of books of accounts, we find that the gross profit declared by the assessee has increased to 0.94% from 0.64% in the immediately preceding year. The AO without taking cognizance of the same has made a lump sum trading addition of Rs 3 lacs which has been reduced to Rs 1.5 lacs by the ld CIT(A). Once the book results are rejected, the profits are to be estimated and the past history of the assessee provides a reliable basis for such estimation. Therefore, in the instant case, where the declared gross profit is higher than gross profit of the previous year which has attained finality, there is no basis for lump sum addition so made by the AO. The issue relating to rejection of books of accounts thus become academic and thus not been adjudicated upon. In the result, the addition so made and upheld by the ld CIT(A) is directed to be deleted.

In ground no. 2, briefly the facts of the case are that the assessee that during the assessment proceedings, the AO noted that the assessee had received unsecured loan of Rs. 95,000/- from Smt.

On appeal, the Ld. CIT(A) held that mere providing of address of lenders, their confirmation, and bank details are not sufficient to discharge the onus of proving the creditworthiness and genuineness of the transaction and that the assessee failed to discharge its onus. He further stated that the fact of loan amounts not being directly credited but have been raised from other persons, creates legitimate doubt in the mind of the AO. Thus, he held that in absence of non-compliance by the lenders to the summons issued u/s 131, the AO is justified in treating the loan as unexplained u/s 68 and accordingly, confirmed the addition.

During the course of hearing, the ld. AR has submitted that the lower authorities have made the addition for the reason that the creditors could not be produced before the AO and that the source of the source is doubtful. However, in doing so following facts were not considered: a) In case of Smt. Manisha Jain, the assessee filed the Voter ID, bank statement, confirmation of accounts, affidavit, and return of income for AYs 2012-13 to 2014-15. In the bank statement, the banker has incorrectly mentioned the name of Bhuvesh Jain against the amount of Rs. 95,000/- dated 22.11.2013 who is the husband of the assessee whereas, this amount is credited in the bank account of the proprietary concern of the assessee, M/s Gupta Flour and Oil Industries on the same date. So far as cash deposit in her bank account is concerned, the same is supported by the income declared by her for which copy of returns is available. In response to notice u/s 131, Smt. Manisha Jain has filed an affidavit to the AO and also the reason as to why she cannot be personally present before the AO. Thus, assessee has proved the identity, genuineness of the transaction and creditworthiness of the creditor. b) In case of Smt. Nageena Jain, the assessee filed PAN, bank statement, confirmation of accounts, and affidavit. In the bank account of Smt. Nageena Jain, there is a transfer of Rs.4,85,000/- on 10.05.2013 from the account of Shri Amit Jain (brother-in-law of Smt. Nageena) and this amount was given to the assessee on 16.05.2013. Shri Amit Jain is a non-resident working in Thailand. He has an NRO account in which he has transferred the funds from Thailand. Copy of his bank account from where he transferred Rs.4,85,000/- to Smt. Nageena Jain on 10.05.2013. Thus, not only the source but source of source is proved. In response to summons u/s 131, Smt. Nageena Jain has filed an affidavit to the AO and also the reason why she cannot be personally present before the AO. Thus, assessee has proved the identity, genuineness of the transaction and creditworthiness of the creditor.

The ld. AR further submitted that the assessee has satisfied the onus cast on her u/s 68 and therefore, addition confirmed by Ld. CIT(A) is unjustified. In support, reliance was placed on the following decisions:- • CIT vs. Shiv Dhooti Pearls & Investment Ltd. (2016) 237 Taxman 104 (Del.) • CIT vs. Jai Kumar Bakliwal (2014) 366 ITR 217/ 101 DTR 377 (Raj.) • CIT vs. H.S. Builders (P.)Ltd. (2012) 78 DTR 169 (Raj.) • Kanhaialal Jangid vs. ACIT 217 CTR 354 (Raj.) • Aravali Trading Co. vs. ITO 187 Taxman 338 (Raj.)

The ld. DR is heard who has relied on the orders of the authorities below.

We have heard the rival contentions and perused the material available on record. There are two transactions of unsecured loan taken by the assessee from her two close relatives, her sister and sister-in- law. Though the assessee claims to have submitted certain documentation in support of such transactions, at the same time, given the fact that certain further enquiries were necessitated, the AO issued summons to these two persons at the request of the assessee and they have failed to appear before the AO. In our view, where the transactions are with close relatives and where the assessee can obtain their confirmations and other documentation, the assessee can equally ensure that they appear before the Revenue authorities to provide the necessary explanation and merely filing an affidavit will not suffice the requirement of law. The decisions cited by the ld AR are rendered in the peculiar facts and circumstances of those cases and doesn’t support the case of the assessee. In the result, we set-aside the matter to the 10 Smt. Nilam Jain vs. ITO file of the AO to call for and examine these two persons and after taking into consideration the documentation so submitted by the assessee, decide the matter as per law. The assessee is equally directed to cooperate and ensure that these two persons are present before the AO and provide the necessary explanation as so required by the AO. In the result, the ground is allowed for statistical purposes.