SURENDER KUMAR PANCHOLI,JAIPUR vs. ACIT(OSD), JAIPUR

PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A), Alwar dated 12-05-2014 for the assessment year 2008-09 raising the following grounds of appeal. ‘’1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the AO in making following disallowances.

ITA No.503/JP/2014 Shri Surender Kumar Pancholi vs ACIT (OSD), Circle – 2, Jaipur

Particulars Disallowed by AO Relief by CIT(A) Confirmed by CIT(A) Labour welfare expenses 4,256 Staff welfare expenses 9,080 Computer expenses 4,182/- Diwali expenses 8,567/- Repair & Maintenance 3,755/- 37,927/- 60,000/- (Vehicle) expensesq Office expenses 5,572/- Telephone expenses 14,255/- Travelling expenses 23,933/- Total 97,927/-

The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the above disallowance of Rs. 60,000/-

2.1 Apropos Ground No. 1 of the assessee, the AO made the addition of

Rs. 97,927/- on account of non-verifiable of above expenses as mentioned in the

ground no. 1 of the assessee. The AO also noted that some of the expense are

incurred in cash and certain expenses are supported by self made vouchers and not

bearing the complete details and justification of use for the purpose of business. In

first appeal, the ld. CIT(A) has granted relief of Rs. 37,927/- by observing as

under:-

‘’5.5 Having considered the submissions made by the appellant, I find that no evidence has been produced in the course of appellate proceedings to controvert the findings of the AO and therefore, hold that it would be just and fair to restrict

ITA No.503/JP/2014 Shri Surender Kumar Pancholi vs ACIT (OSD), Circle – 2, Jaipur the disallowance to Rs. 60,000/-. The appellant would get a relief of Rs. 37,927/- on this account.’’

2.2 During the course of hearing, the ld.AR of the assessee submitted that the

lower authorities have not pinpointed any specific defects in the books of account

of the assessee. The books of account of the assessee are audited and no adverse

comment has been made by the auditor. Thus the addition confirmed by the ld.

CIT(A) may please be deleted.

2.3 On the other hand, the ld. DR supported the order of the ld. CIT(A).

2.4 I have heard the rival contentions and perused the materials available on

record. It is noted that the AO has made the addition of Rs. 97,927/- i.e. 10% of

total expenses of Rs. 9,79,265/- . In first appeal, the ld. CIT(A) has been sustained

to the extent of Rs. 60,000/- giving relief of Rs.37,927/- to the assessee. It is noted

from the available records that the books of account of the assessee are audited and

no adverse comment has been made by the auditor in the case of the assessee.

Looking to the above facts and circumstances of the case and in order to maintain

equity and justice, the amount of Rs. 48,964/- is sustained i.e. 50% of total

disallowance of Rs. 97,927/- made by the AO. Hence, the ground No. 1 of the

assessee is partly allowed.

3.1 Apropos Ground No. 2 of the assessee, the facts as emerges from the order

of the ld. CIT(A) is as under:-

ITA No.503/JP/2014 Shri Surender Kumar Pancholi vs ACIT (OSD), Circle – 2, Jaipur ‘’6.5 I have gone through the assessment order, remand report as well as submission made by the appellant and find that an addition of Rs. 5 lac was made by the AO on account of capital introduction made by the appellant in cash during the period under consideration. The addition was made as the appellant could not substantiate the sources of cash being introduced in the business as capital contribution. The appellant had explained that an advance of Rs. 5,51,000/- was received in cash against an agreement for sale of shop on 29-03-2007. AO did not accept the explanation as no supporting evidences were filed in the course of assessment proceedings.

6.6 In the course of appellate proceedings, the assessee has filed a copy of sale agreement as an evidential evidence to substantiate the explanation given earlier. This evidence was examined by the AO and the remand report has been reproduced above in the order.

6.7 It is seen from the evidence available on record that the so called agreement to sale has not been registered and has no evidentiary value. This document has only been notorized and why the same could not be produced at the time of assessment proceeding, has not been explained. Despite these shortcomings, the additional evidence filed by the appellant has been admitted in interest of natural justice. However, the explanation given by the appellant that the amount received in cash as advance against sale of property on29-03- 2007 has been introduced in small instalment throughout the year seems to be strange and aginst the normal business conduct. During the course of assessment proceeding, AO had found that substantial cash has been introduced in the books not on the same date but from the April 2007 to September 2007.

6.8 The appellant has further failed to produce the evidence with regard to the receipt of final consideration on sale of shop and copy of transfer documents for sale of shop etc. It is stated by the appellant that finally the shop could not be registered and how the amount has been returned back by the appellant has not been explained and also no evidence to substantiate the same could be furnished in the course of remand proceedings. Thus the explanation given by the appellant and the evidence produced in the remand proceedings is only self

ITA No.503/JP/2014 Shri Surender Kumar Pancholi vs ACIT (OSD), Circle – 2, Jaipur serving and is meant only to meekly cover up the introduction of cash in the books of account by the appellant.

6.9 It would be relevant to note that Hon'ble Punjab & HaryanaHighCourt in the case of CIT vs Deepak Iron & Steel Rolling Mills, 338itr 307 has upheld the addition made by the AO on account of unexplained credit entries found in the partner’s capital accounts as maintained in the books of the firm. It was held by the Court that the unexplained credits could be taxed as unexplained income of the firm as no satisfactory explanation could be offered by the partner.

6.10 In view of the above discussion, I hold that the addition made by the AO on account of introduction of capital in cash by the appellant is justified and accordingly confirm the addition of Rs. 5,00,000/- made under this head.’’

3.2 During the course of hearing, the ld.AR of the assessee prayed for deletion

of addition of Rs. 5.00 lacs u/s 68 of the Act. The ld.AR of the assessee also

submitted that due to dispute between the parties, the assessee could not demand

the copy of sale agreement from the party and the same could not be produced

before the AO during the assessment proceeding .

3.3 On the other hand, the ld. DR supported the order of the lower authorities.

3.4 I have heard the rival contentions and perused the materials available on

record. In the present facts and circumstances of the case, it will be in the interest

of equity and justice to restore the issue to the file of the AO to decide it afresh by

providing reasonable opportunity of being heard to the assessee. The assessee is

also directed to produce the relevant evidence /documents before the AO as to the

ITA No.503/JP/2014 Shri Surender Kumar Pancholi vs ACIT (OSD), Circle – 2, Jaipur addition of Rs. 5.00 lacs u/s 68 of the Act on account of sale consideration of shop. Thus the Ground No. 2 of the assessee is allowed for Statistical purposes. 4.0 In the result, the appeal of the assessee is partly allowed for Statistical purposes. Order pronounced in the open court on 9/10/2017.

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