DEPUTY COMMISSIONER OF INCOME-TAX,, JALGAON vs. SHRI RTANLAL CHUNNILAL BAFNA,, JALGAON

Ground No.1 is with regard to the findings of the Ld. CIT(Appeals) in restricting the figure of melting loss to the extent of 50% of the addition i.e. at Rs.96,872/-.

The Assessing Officer had observed that the assessee has not maintained the quantitative details of manufacturing account of actual consumption of silver and on verification of silver account; it was found that actual use of silver is more in manufacturing of silver utensils and ornaments. When it was pointed out to the assessee, the assessee admitted and surrendered value of melting loss and thus, addition of Rs.1,93,744/- u/s.69 of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟), was made by the Assessing Officer.

The Ld. CIT(Appeals) observed that the assessee is not maintaining the quantitative details of manufacturing accounts of actual consumption of silver. However, the Ld. CIT(Appeals) considered the nature of business of the assessee, shortages due to melting loss in the silver account cannot be straight way denied. The Assessing Officer had disallowed entire melting loss at 8741.41Kg and the Ld. CIT(Appeals) restricted melting loss of disallowance to 50% at Rs.96,872/-.

We have perused the case records and have given considerable thought to the findings of the Ld. CIT(Appeals). We find, it is categorically observed by the Ld. CIT(Appeals) that the assessee has not maintained the quantitative details of manufacturing account of actual consumption of silver. However, in every trade or business there are certain practical aspects which have to be considered and that benefit has to be allowed to the assessee doing such profession or business. In this case, the shortages due to melting loss in the silver account cannot be altogether denied. The Ld. CIT(Appeals) was correct in sustaining 50% of 8741.41 Kg of value of Rs.1,93,744/-. We do not find any infirmity with the findings of the Ld. CIT(Appeals) and hence, ground No.1 raised in appeal by the Revenue is dismissed.

Ground No.2 relates to the disallowance of amount Rs.1,41,000/- made on account of salary paid to Shri Rajkumar Ratanlal Bafna invoking provision of section 40A(2)(b) of the Act.

The facts on this issue are that as per the books of account, salary at Rs.2,13,000/- has been debited to Shri Rajkumar Ratanlal Agrawal as against last year‟s salary at Rs.96,000/-. There was statement on oath taken

Before the Ld.CIT(Appeals), it was submitted by the Ld. AR that as per CBDT Circular No.6P(LXXVI-66) of 1968 dated 6th July, 1968 wherein it is stated that “The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which the payment is made or legitimate needs of the business or profession or the benefit derived by, or accruing to, the taxpayer from expenditure. Such portion of the expenditure which, in the opinion of the ITO is excessive of unreasonable according to these criteria is to be disallowed in computing the profit of the business or profession. It is further stated that the ITO is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payment to relative and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases.”

We have perused the case records, CBDT Circular (supra.) as well as the decision of the Hon‟ble Jurisdictional High Court in the case of CIT Vs. Indo Saudi Services (Travel) P. Ltd. (supra.). We have also analyzed the facts and circumstances of the case on this issue. We find that the Assessing Officer made this addition on the basis of statement recorded u/s.133A of the Act during the course of survey and without any other supporting/corroborative evidences. It has been clearly held by various judicial pronouncements that no additions can be made only on the basis of statement taken during the course of survey by the Revenue Authorities unless and until there are some corroborative /supporting evidences. In this case, the Assessing Officer has not brought in any specific reasons for such disallowance except the fact that Shri Rajkumar R. Bafna is the son of the assessee and his statement was recorded u/s.133A of the Act. As per Board Circular (supra.), there has to be some reasonableness regarding action taken by the Assessing Officer for disallowance of expenses. The reasonableness of expenses is to be seen from the view point of businessman and not from the view point of revenue

Ground No. 3 is with regard to challenging the decision of the Ld. CIT(Appeals) in deleting addition amounting to Rs.77,02,672/- on account of transactions with Chhoriya Group.

The facts with regard to this issue are that search action u/s.132 of the Act was conducted at the residential premises of Chhoriya Group at Jalgaon on 22.08.2008. During the course of survey action certain rough cash books were seized at residential cum factory premises of Shri Kanhaiyalal B. Chhoriya, G-1 to 8, MIDC, Jalgaon. It was noticed from the seized documents as per Annexure-B, Item No.1 to 40 which are rough cash book of Chhoriya Group that Shri R.C. Bafna, Jalgaon had given advances to Chhoriya group during the period from 01.04.2008 to 31.03.2009. The Assessing Officer observed that on perusal of balance sheet along with return of income for assessment year 2004-05 showed that these advances were not reflected in the said balance sheet and hence, additions were accordingly made by the Assessing Officer.

The Ld. CIT(Appeals) as per detailed reasoning as appearing in his order deleted the addition.

We have perused the case records and have given considerable thought to the findings of the Ld. CIT(Appeals). We observe that regarding one of the entries, the Ld. CIT(Appeals) has stated in his findings that Rs.25,00,000/- has already been considered in the peak working in the appellate order for A.Y.2008-09 and the same had been brought to tax. Whereas as per the details of transaction given by the Assessing Officer‟s order, the amount of Rs.25,00,000/- was a repayment by Chhoriya to Bafna dated 16.04.2008 i.e. financial year 2008-09 relevant to current assessment year 2009-10 and therefore, it is not possible that this amount has already been subject to tax. We also observe that so far as the amount of Rs.10,00,000/- is concerned dated 02.04.2008, it is cash returned. If it is cash returned, it cannot be the income of the assessee as it was an advance taken earlier which was returned. Except the amount of Rs.10,00,000/-, rest of the amounts need detailed verification. We therefore, set aside the order of the Ld. CIT(Appeals) and restore this issue to the file of Assessing Officer for detailed verification as per our directions given in earlier years. Needless to say, the Assessing Officer shall grant reasonable opportunity of hearing to the assessee in accordance with law. Thus, ground No.3 raised in appeal by the Revenue is allowed for statistical purposes.

Ground No.4 of Revenue‟s appeal relates to action of the Ld. CIT(Appeals) in deleting the additions amounting to Rs.5,11,061/- made on account of interest payment and considered the net interest debited to P & L account while calculating disallowance u/s.14A of the Act.

The facts on this issue are that the Assessing Officer has considered the net interest debited to P & L account of Rs.4,77,622/- while calculating the disallowance of interest under the provision of section 14A of the Act, as stated at Page No.7 of the assessment order. The Ld. CIT(Appeal) deleted the addition by observing that though the assessee in the P & L account has claimed Rs.4,77,622/-, the disallowance of interest cannot be at Rs.5,11,061/-. The disallowance of interest cannot be more than whatever has been claimed by the assessee in the P & L account. Therefore, we do not find any infirmity with the findings of the Ld.CIT(Appeals) and relief provided to the assessee is hereby sustained. Thus, ground No.4 raised in appeal by the Revenue is dismissed.

Ground No.5 and 6 are general in nature and hence, requires no adjudication.

In the result, appeal of the Revenue is partly allowed for statistical purposes.