SH. ASHOK MITTAL,NEW DELHI vs. ADDL. CIT, NEW DELHI

Aggrieved with such part relief given by the ld. CIT(A), both the assessee as well as the Revenue filed appeal before the Tribunal. The Tribunal vide order dated 16.11.2007 in restored the following issues to the file of the Assessing Officer for fresh adjudication which were deleted by the ld. CIT(A) :-

(i) Bad debts written off - Rs.20,62,19,878/-

(ii) Interest of loan advanced upto 15% - Rs.1,56,25,970/-

(iii) Addition on account of net profit on sales of M/s Litolier by restricting the same to 8% as against 25% adopted by the Assessing Officer - Rs.17,48,055/- Total - Rs.22,35,93,903/- 5. The Tribunal vide order dated 02.03.2009 dismissed the appeal filed by the assessee for non-prosecution. However, vide order dated 26.06.2009, the Tribunal recalled the ex-parte order passed by it dismissing the appeal filed by the assessee. Vide order dated 31.03.2006, the Assessing Officer passed the order u/s 143(3)/250 determining the total income of the assessee at Rs.1,81,34,320/-. This order was passed to give effect to direction of the ld. CIT(A) in his order dated 21.06.2004 whereby he restored the addition made on account of sundry balances written off to the extent of Rs.3,35,16,394/- to the file of the Assessing Officer. As a result of this order, the Assessing Officer deleted the additions to the extent of Rs.2,08,86,316/- on account of 12 parties and confirmed the additions to the tune of Rs.1,26,30,078/- in respect of 10 parties. Ld. CIT(A) vide order 24.04.2009 deleted the disallowance of Rs.1,18,35,806/- and sustained the disallowance of Rs.7,94,271/- out of aggregate disallowance of Rs.1,26,30,078/- made by the Assessing Officer in the assessment order. Against such part relief, the assessee as well as the Revenue are in appeal vide (by Revenue) and CO No.257/Del/2009 (by assessee).

6. On 15.12.2008, the Assessing Officer in pursuance to the direction of the Tribunal vide order dated 16.11.2007 framed an order of assessment determining the total income at Rs.1,52,83,550/- whereby he gave part relief to the assessee on account of the issue restored to his file by the Tribunal and the details of which are as under :-

Sr. Particulars Amount (Rs.) Remarks No. i) Bad debts written off 20,62,19,878/- Addition Deleted ii) Interest on loan advanced 1,56,25,970/- Addition restricted to Rs.49,04,217/-* iii) Addition on account of net profit on 17,48,055/- Addition sales of M/s Litolier by restricting rate restricted to @ 8% instead of 25% applied by the Rs.5,02,426/- learned Assessing Officer Total 22,35,93,903/- * However, the Assessing Officer held that even in respect of disallowance sustained to the extent of Rs.62,50,388/- by the CIT(A) in order dated 21.6.2004 there is excessive disallowance by Rs.13,46,171/- on the factual basis i.e. only in respect of three parties to whom excess interest amounting to Rs.49,04,217 has been paid i.e. above 15% and not Rs.62,50,388/-.”

7. Ld. CIT(A) vide order dated 28.03.2013 partly allowed the appeal filed by the assessee and now the position is as under :-

Sr. Particulars Total Addition Addition Addition Total No. by AO Deleted by made/ Addition by (1) CIT(A) enhanced by CIT(A) (2) CIT(A) (2+3) (3) i) Disallowance of 49,04,219 47,99,998 1,39,344 2,43,563 interest on loan i) Addition on 5,02,426 1,93,023 - 3,09,403 account of GP rates Total 54,06,645 48,53,677 1,39,344 5,52,966

Ground No. Ground No. Issue Amount (Assessee) (Revenue) 1 1 Addition on account of GP rates 3,09,403/- 2 2 Disallowance of interest on loan 2,43,563/- ITA No.3764/Del/2004 (By Assessee) :

“4.1 In the ledger account of M/s Regulus Freight Forwardes Pvt. Ltd., it is observed that on 19-10-200 and 02-02-2001, the assessee has received cheques from the said party amounting to Rs.22 crores and 14.50 crores respectively, aggregating to Rs.36.50 crores. On 27.3.2001, the assessee has first issued a cheque of Rs.36.50 crores which sauares up the account. Then he has given another cheque on this very date itself, i.e. 27.3.2001 for the reasons best known to the assessee. 4.2 In respect of M/s Tradrsya Infotech Pvt. Ltd., the assessee has made payment of Rs.1.10 crores on 22.02.2001 and have received payments on 27.02.2001 and 07.03.2001, amounting to Rs.50 lacs land Rs.10 lacs respectively, aggregating to Rs.60 lacs., But as on 31st March, the balance amount of Rs.50 lacs has been shown as written off. 4.3 In respect of Shri Narotam Das, it is seen that the assessee has given a sum of Rs.7 lacs, mentioning as loan in the narration, on 26.04.2000 and on 25.09.2000, he has against advance a sum of Rs.5 lacs to Shri Das. But surprisingly, on 31.3.2001, the whole sum of Rs.12 lacs has been claimed as written off. 4.1.3 In respect of Salin Investments Pvt. Ltd., the assessee has shown amount to be received from it as on 1.4.2000, amounting to Rs.40 lacs. The assessee has made payment of Rs.52,20,000/- to it on 27.04.2001 the assessee has written off the balance of Rs.12,50,000/-. 4.2 Similar position emerges in respect of others also. In certain cases, the assessee has written off the balances pertaining to earlier years as well. But most of these are at maximum one or two years old balance.”

11. He, therefore, asked the assessee to explain the nature of transactions in the aforesaid accounts and to state as to how these are/were being reflected in the trading/Profit & Loss Account of the assessee. In absence of any details filed by the assessee, the Assessing Officer made addition of Rs.3,33,14,317/- to the total income of the assessee.

12. In appeal, ld. CIT(A) sustained an addition of Rs.39,50,000/- and deleted the balance addition by observing as under :-

“(iv) I have considered the submissions made. I have also gone into the facts narrated by the ld. A.O. The issue is discussed as under :- a) M/s Regulus Freight Forwarders Pvt. Ltd. : Since in this case, no case can be made out that the amount written off constituted to be debt irrecoverable, no interference is called for, the addition of Rs.15 lakhs is sustained/upheld. b) M/s Tradrsya Infotech Pvt. Ltd. : No specific details have been given by the A.O. justifying addition. It has been pleaded that full details were furnished during asst., that, it was a Benami concern of Shri Ketan Parikh involved in scam and arrested, that it was a proper debt, revenue in nature, irrecoverable, had actually been written off, and, that, it had earlier been taken into account in computing appellant’s income in the previous or earlier years. It was stated in appeal that now, as per arbitration award, repayment in installments is promised which would be declared as income. Thus, for identical facts, the addition is deleted subject to A.O.’s verifying from records the correctness of facts pleaded as aforesaid and that irrecoverable profits from speculative business. c) Shri Narotam Das : Here also the amount written off has not proved to be an irrecoverable debt. Therefore, the addition is upheld at Rs.12 lakhs. d) Salin Investments Pvt. Ltd. : The appellant failed both before the A.O. and before the undersigned to evidence that the amount written off had become irrecoverable bad debt. Therefore, the addition is upheld at Rs.12.50 lakhs. e) Similarly, as in (b) above, for other misc. items, the A.O. has not given specific individual details to justify addition. It was argued that all these entries were old irrecoverable proper debts, revenue in nature, actually written off and that the same were earlier taken into account in computing the income of the appellant. Therefore, for identical facts, the addition is deleted subject to A.O.’s verifying from records the correctness of facts as aforesaid pleaded and also that the irrecoverable profits or speculative transactions can be set off only against profits from speculative business.”

Sums Paid Date Amount (Rs.) 27.3.2001 36.50 crores 27.3.2001 15,00,000 Amount Written off Date Amount (Rs.) 31.3.2001 15,00,000

Referring to page 9 of the Paper Book, he drew the attention of the Bench to the details of sundry balances written back and offered as income for assessment year 2005-06 in the books of the assessee. Referring to page 10 of the Paper Book, he drew the attention of the Bench to the Profit & Loss Account of the assessee for assessment year 2005-06. Referring to page 11 to 13 of the Paper Book, he drew the attention of the Bench to the copy of the assessment order dated 28.12.2007 passed u/s 143(3) in the case of the assessee for the assessment year 2005-06. He accordingly submitted that since the assessee has offered the amount to tax in the assessment year 2005-06 after receipt of the same which has been accepted by the Assessing Officer in the order passed u/s 143(3), therefore, the sum of Rs.15,00,000/- written off during assessment year 2001-02 should be allowed as deduction.

Referring to page 14 to 14B of the Paper Book, ld. counsel for the assessee drew the attention of the Bench to the copy of account and copy of bank statements for the assessment year 2001-02. He submitted that the amount has been advanced by account payee cheques in the course of the business of the assessee. The Assessing Officer had conducted independent verification from the said party who had duly confirmed the advance from the assessee.

Therefore, the advance given by the assessee in normal course of business, which was written off in the instant year has to be allowed as deduction.

16.1 So far as the amount of Rs.12,50,000/- written off in the case of Salin Investments (P) Ltd. is concerned, the ld. counsel for the assessee submitted that the assessee has paid an amount of Rs.52,50,000/- on 27.04.2000 when there was an opening balance of Rs.40,00,000/- as on 01.04.2000. Referring to page 15 of the Paper Book, he drew the attention of the Bench to the copy of the Ledger Account of M/s Salin Investments (P) Ltd. in the books of the assessee.

Referring to page 15A to 15C of the Paper Book, he drew the attention of the Bench to the copy of the bank statements for the assessment year 2001-02. Referring to page 15D to 15E of the Paper Book, he drew the attention of the Bench to the copy of the Balance Sheet as on 31.03.2000. He submitted that the Assessing Officer disallowed the claim of deduction on the ground that no cogent reasons have been stated to support the writing off which has been upheld by the ld. CIT(A). He submitted that the assessee first received an amount of Rs.40,00,000/- from M/s Salin Investments Pvt. Ltd. which was repaid during the year. The assessee apart from the above sum had also paid an amount of Rs12,50,000/- as advance against the purchase of shares which was not repaid by the said company. Since the assessee had written off the amount during the year, the same should be allowed as a deduction.

Referring to the said decision, he submitted that the Hon’ble Delhi High Court, relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Mysore Sugar Co. Ltd. reported in 46 ITR 649 has accepted the plea of the assessee. He submitted that following the aforesaid decisions it has been held that loss of advances in the course of business are eligible for deduction u/s 37 of the I.T. Act. Referring to the decision of the Hon’ble Calcutta High Court in the case of A.W. Figgis and Co. Pvt. Ltd. vs. CIT reported in 254 ITR 63, he submitted that the Hon'ble High Court in the said decision has held that despite pendency of the suit if the assessee felt that the loan could not be recovered the filing of civil suit for recovery of debt was not necessary to claim the bad debt. He submitted that in the present case, the assessee had exhausted all the remedies including the filing of the suit and, therefore, the assessee had got all the justifiable grounds for allowing the loss. He accordingly submitted that the sundry balances written off amounting to Rs.39,50,000/- which has been upheld by the ld. CIT(A) should be deleted. He also relied on the decisions of the Hon’ble Allahabad High Court in the case of Shitla Prasad Shyam Lal vs. CIT reported in 96 CTR 150 and decision in the case of Kamla Cotton Company vs. CIT reported in 226 ITR 605.

23. Since, this ground is inter-connected with the ground no.2 in therefore, the same will be dealt with at appropriate place.

24. Ground no.1(c) relating to disallowance of telephone expenses of Rs.1,18,289/- was not pressed by the ld. counsel for the assessee for which the ld. DR has no objection. Accordingly, the same is dismissed as not pressed.

25. In ground no.2(a) the assessee has challenged the order of the ld. CIT(A) in confirming the action of the Assessing Officer in treating a sum of Rs.82,20,000/- as “income from other sources” instead of “business income”.

The Assessing Officer while computing the assessment of the said concern, treated the following amounts as income from other sources as against business income disclosed by the assessee : (i) service charges – Rs.42,00,000/-, (ii) miscellaneous charges – Rs.36,00,000/-, (iii) establishment charges – Rs.4,20,000/-. While doing so, the Assessing Officer has not asked any explanation from the assessee to explain the nature of such income.

29. Ld. counsel for the assessee referring to page 224 to 232 of the Paper Book drew the attention of the Bench to the audited Balance Sheet and Profit & Loss Account of the assessee for the year ending 31.03.2001. Referring to page 233 to 235 of the Paper Book, he drew the attention of the Bench to the details of miscellaneous income and service charges received by the assessee.

Referring to page 237 to 268 of the Paper Book, he drew the attention of the Bench to the copy of the order of the Tribunal for assessment year 2000-01. He referred to para 26 of the order and submitted that the Tribunal has restored the issue to the file of the Assessing Officer for fresh adjudication.

Similarly, the same is accepted as business income in the order passed u/s 143(1) for assessment years 1999-2000 and 2002-03. For assessment year 2000-01, the matter has been restored to the file of the Assessing Officer by the Tribunal. Referring to the order of the Hon’ble Delhi High Court in assessee’s own case for assessment year 2000-01 vide order dated 21.11.2003, the ld. counsel for the assessee drew the attention of the Bench to the said order and submitted that the Hon'ble High Court has upheld the conclusion of the Tribunal that such income is business income. The above order relates to the sum of Rs.36,00,000/- as miscellaneous income and sum of Rs.4,20,000/- received as establishment charges. He submitted that the balance amount of Rs.26.41 lakhs has been accepted by the Assessing Officer as business income in assessment year 2000-01. He accordingly submitted that the ld. CIT(A) is not justified in treating such income as income from other sources as against business income.

“4. In the second round, the Assessing Officer examined claim of Rs.31,50,000/- received as management and advisory fee from Fareast Corporation Pvt. Ltd. and M/s European Investment Ltd. under the heading "Miscellaneous Income". The Assessing Officer has held as under:- "3. Miscellaneous Income That during the year the assessee has received Rs.31,50,000/- as management & advisory fees from Fareast Corporation Pvt Ltd. and M/s European Investment Ltd copy of the agreements are enclosed. It may stated that the similar receipt of the assessee in A.Y. 1998-99 and 1999-2000 have been assessed as business income. A comparative chart regarding miscellaneous income received by the assessee for A.Y. 1999-2000 to 2001-02 is enclosed. The receipt on account of establishment charges has been assessee in earlier assessment years as 'Business Receipts' and following the principle of consistency, the same may be treated as 'Business Receipts' x x x x x x x x x x"

records of expenses incurred by M/s Litolier against different sources of income and segregated the expenses in the ratio of income earned which is not acceptable especially when this income is assessed as income from other sources. This income cannot be accepted to be business income since the assessee has not been able to identify and substantiate the expenses incurred for earning such income. There does not appear to be any expenses on account of infrastructure, staff etc. for earning the income under the head miscellaneous income. Hence this income is to be assessed under the head income from other sources."

"4.1 After examining the nature of these receipts and the accounting treatment in the appellant‟s books of accounts, I am of the opinion that the Assessing Officer has not appreciated the facts. The controversy regarding whether the income is to be treated as business income or as Income from Other Sources has arisen on account of the appellant crediting the gross amount of Rs.31,50,000/- to the Profit & Loss Account of M/s. Litolier, which is engaged in the business of trading of lamps. The Assessing Officer was of the view that the receipts from management and advisory fees had nothing to do with the business activity of M/s Litolier, hence the same could not be treated as business income. However, the Assessing Officer has failed to examine the nature of the receipts independently, as directed by the Hon‟ble ITAT. It has been submitted before the undersigned that the copies of the agreements entered into by the appellant with Far East Investment Corporation Ltd. and European Investment Ltd. were filed before the Assessing Officer vide letter dated 27.08.2010 which show that the appellant‟s proprietorship concern M/s Litolier was appointed as „Investment Manager‟ to invest and manage the funds and assets entrusted to him by these Mauritius based companies. The appellant has contended that the management fees were accounted for. In the case of M/s. Litolier because as per its consistently followed modus operandi, administrative expenses are incurred centrally through M/s Litolier and apportioned in the different proprietorship business concerns in proportion to the turnover. The appellant has not maintained separate record for expenses incurred for separate sources of income and has shown all expenses incurred under one consolidated account for his convenience. However, it cannot be denied that some expenditure has been incurred for earning of the management and advisory fees in terms of common expenses of office overheads, salaries, rent etc. It is also seen that the Assessing Officer has not disallowed any portion of the expenditure claimed by M/s. Litolier, thus, implicitly accepting that the expenditure is duly incurred. Whether the expenditure is deducted against the Income from Business of M/s. Litolier or against the Income from Other Sources, it results in no difference to the taxable income. Moreover, it is seen that the appellant also derives income from business of speculation, dealing, in shares, investments, loan finance and related activities in the name of M/s Ashok Mittal & Co. Hence the management of the funds and assets of the two afore-mentioned companies is along the lines of the business activity of the other proprietorship concern. I find no cogent reason in the assessment order to support the finding that the income from management and advisory fees requires to be assessed as Income from Other Sources. The Assessing Officer has brought nothing on record to prove that the appellant did not carry out the stated activity of investment management. The alleged reason that the appellant could not identify the related expenses does not establish that the income was not derived from the business activity of „Investment Manager‟. (4.2) The appellant‟s contention that on the principle of consistency, the income from investment management and advisory fees should have been assessed as business income is also with merit. There is no fundamental difference in the nature of business activity between the present income. In the Assessment Year 1998-99, the „miscellaneous income‟ was disclosed and assessed as business income in the order under section 143(3) dated 29.03.2001. This was the first year of the agreement signed with Far East Investment Corporation Ltd. and Eurpopean Investment Ltd. As there is no change in the terms of the agreement or in the nature of services rendered, even on account of principle of consistency, the Assessing Officer action of treating the income as Income from Other Sources is not justified. For all the above reasons, the appellant succeeds at Grounds of Appeal

Nos.1 to 2." The aforesaid findings have been affirmed by the tribunal.

9. In view of the aforesaid factual position, we do not find any merit in this appeal and the same is dismissed. No costs.”

35. The above issue relates to miscellaneous income and establishment charges. However, so far as the issue relating to service charges is concerned, we find the Assessing Officer has accepted such income as business income in the order passed u/s 143(3) for the assessment year 2003-04 to 2006-07. Similarly, after the issue was restored to the file of the Assessing Officer by the Tribunal, the Assessing Officer himself in the assessment order has accepted the same as business income. In view of the order of the Assessing Officer on the issue of service charges and respectfully following the decision of Hon’ble High Court in assessee’s own case on the issue of miscellaneous income and establishment charges we hold that the ld. CIT(A) was not justified in treating the income to the extent of Rs.82,20,000/- as “income from other sources” as against “business income” declared by the assessee. Accordingly the order of the ld. CIT(A) is set-aside and the ground raised

by the assessee is allowed.

36. In ground no.2(b) the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of gross loss of Rs.3,02,829/- and retaining the G.P. rate at 8% on the disclosed as well as undisclosed sales of Rs.17,44,130/-.

37. Since the above ground is linked with ground no.1 in (by Revenue) and ground no.1 in (by assessee), therefore, this ground will be discussed at appropriate place.

38. In ground no.2(c) the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of Rs.77,350/- u/s 43B.

39. After hearing both the sides, we find the Assessing Officer disallowed an amount of Rs.19,389/- (incorrectly stated in ground as Rs.77,350/-) on the ground that assessee has deposited the contribution to PF for the month of August on 22.09.2000 which is beyond the due date prescribed i.e. 15.09.2000. In appeal, the ld. CIT(A) upheld the action of the Assessing Officer.

40. Since the assessee in the instant case has admittedly deposited such contribution to PF before the due date of filing of the return, therefore, in view of the consistent decisions of the Tribunal that no disallowance can be made u/s 43B being contribution to PF and ESIC deposited prior to due date of filing of the return, we set-aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition.

41. Ground no.2(d) relates to addition of Rs20,457/- out of society charges which was not pressed by the ld. counsel for the assessee and the ld. DR has also no objection. Accordingly, the same is dismissed as not pressed.

42. In ground no.2(e) and 2(f), the assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs.5,06,219/- out of advertisement expenses and Rs.10,866/- out of sales promotion expenses.

As mentioned earlier the assessee had filed his return on 31st October, 51.

2001 declaring loss of Rs.2,55,663/-. The Assessing Officer had completed the assessment u/s 143(3) on 31.03.2006 determining the total income of Rs.27,07,97,350/-.

(i) M/s Prabhudas Lila Dhar Pvt. Ltd. - Rs.50,00,000/- (ii) M/s Oson Construction Pvt. Ltd. - Rs.48,45,000/- (iii) Shir Manish C. Zaveri - Rs.2,50,000/- (iv) M/s A.J. Packing - Rs9,40,000/- (v) M/s Siddharth Polymer - Rs.6,50,000/- (vi) Shri Anil Sekhri - Rs5,40,000/- (vii) M/s Architecture Autonomous - Rs.1,42,972/- (viii) Sundry Advances - Rs1,70,106/- (ix) Staff Advances - Rs.42,000/- (x) Nagin T. Sanghvi - Rs.50,000/-

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in Law in admitting the additional evidence in the case during the course of Appellate proceedings. The Ld. CIT-(A) has not followed the conditions prescribed under Rule 46A of the IT Rules before admitting the additional evidence filed during the course of appellate proceedings.

2. On the facts and in the circumstances of the case the Ld. CIT-(A) has erred in Law and on facts in deleting the addition of Rs.1,18,35,806/- out of Rs.1,26,30,078/- made on account of sundry balance.

3. The appellant craves leave to add, alter or amend any of the grounds of appeal

before or during the course of hearing of the appeal.”

55. The assessee has also filed Cross Objection by raising the following grounds of cross-objections :-

“1. That the learned Commissioner of Income Tax (Appeals) XXIII, New Delhi has erred both in law and, on facts in confirming the disallowance of claim of sundry balances written off Rs.7,94,272/-, partywise details of which are as under : Sr. No. Name of Party Amount (Rs.) 1. Shri Anil Sekhri 5,40,000/- 2. M/s. Architecture Autonomous 1,42,972/- 3. Payments towards Stamp Fees 1,11,300/- 2. That while confirming the aforesaid disallowance that the learned Commissioner of Income Tax (Appeals) has failed to appreciate the submissions made by the appellant, evidence placed on record and, judicial pronouncement relied upon.

“8. For easy disposal of this appeal, I am taking party-wise transactions which have been written off. The first case is that of M/s Prabhudas Lila Dhar Pvt. Ltd. in which Rs.50,00,000/- has been written off by the assessee. The ld. AO in the impugned order has adopted two grounds for making addition of the said Rs.50,00,000/-. The two grounds as mentioned in page 4 of the impugned order is (1) – u/s. 133(6) of the Act, M/s. Prabhudas Lila Dhar Pvt. Ltd. was asked to confirm the closing bank balance in its account vis-à-vis the assessee. The ld. AO has simply stated that there is a lot of difference in the figure reported by evidence. (2) – claim of the assessee as not recoverable was untenable and therefore rejected by the ld. AO. The assessee in its submission dt.9.1.2009, which was submitted on 19.1.2009 and has been reiterated vide written submission on 12.3.2009 has stated – (i) Mere difference in balances cannot be a ground to disallow claim of education of sundry balance written off; (ii) Entire sum, which accrued out of an alleged share transaction with M/s. Prabhudas Lila Dhar Pvt. Ltd., had been disclosed as income by the assessee in the preceding assessment year. (iii) The replied from M/s. Prabhudas Lila Dhar Pvt. Ltd. were F.Y. 1997- 98 and 1998-99 and not prior thereto. Thus, the sum of Rs.50,00,000/- which was the closing balance on 31.3.1996 and not been obtained by the ld. AO and therefore any addition on that account could not have been made; (iv) Reliance was placed on the decisions in CIT v. Morgan Securities & Credits Pvt. Ltd. reported in 292 ITR 339 (Delhi) and CIT v. Nai Duniya reported in 295 ITR 346 (MP); In the verbal submission made on 12.3.2009, it was vehemently contested that the accounts of the assessee were audited. Secondly, if the ld. AO deemed that the books were incorrect and did not manifest the true and correct picture, the books should have been rejected. “9. I have carefully considered the order of the Id. AO and the submissions made by the assessee. It is not disputed that Rs. 50,00,000/- has been written off by the assessee during the current assessment year. It is also not disputed that on a reference to M/s. Prabhudas Lila Dhar Pvt. Ltd., the closing balances as shown by this third party was Nil. However, perusal of the record suggests that the transactions with M/s. Prabhudas Lila Dhar Ltd. had been disclosed in the earlier assessment years. There is no doubt that the reply from M/s. Prabhudas Lila Dhar Pvt. Ltd. has given details for the period 1.4.1997 onwards only. The difference in balance in the accounts of the assessee and M/s. Prabhudas Lila Dhar Pvt. Ltd. is no doubt a serious issue as it suggests that either the assessee's accounts are incorrect or that of M/s. Prabhudas Lila Dhar Pvt. Ltd. The third reason which can possibly be suggested is that there is a communication gap between the assessee and M/s. Prabhudas Lila Dhar Pvt. Ltd. This piece of evidence in the account of a third party is certainly persuasive in nature, but not clinching, in as much as that the Id. AO has not vetted the books of accounts of M/s. Prabhudas Lila Dhar Pvt. Ltd. Perusal of the assessment records do not suggest any such exercise. The books of the assessee have also not been rejected u/s. 145(3) of the Act. In other words, by merely receiving a communication from a third party account cannot nail the assessee without any further investigations into the matter.

10. Despite the persuasive nature of evidence as cited above, the stand taken by the ld. AO that the writing off is rejected, does not stand the test of law laid down by the Hon'ble Delhi High Court in CIT vs. Morgan Securities & Credits Pvt. Ltd. [2007] 292 ITR 339 (Delhi), which after referring to Board's circular No. 551 dt. 23.1.1990, has inter-alia held as under at page 343 & 344:-

“A conjoint reading of section 36(2) and section 36(1)(vii) makes it clear that the assessee would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular No. 551, dated January 23, 1990 (see [1990] 183 ITR (St.)7), the relevant portion of which reeds as follows (page 37) : '6.6. The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become had in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become had in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and a/so to rationalize the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub- section (2) of the section to provide that the claim of bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. 6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year, if the Income-tax Officer was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987, has, therefore, amended these clauses to withdraw them after the assessment year 1988-89.” The conundrum which has arisen before us had also engaged the attention of the Gujarat High Court in CIT v. Girish Bhagwatprasad [2002] 256 ITR 772 with which we are in respectful agreement. Our learned brothers had pointedly observed that the genuineness of the claim predicted on section 36(1)(vii) of the Income-tax Act was not in doubt. Where the loan transaction is itself shrouded in uncertainty other provisions of the status would immediately come into play. Our learned brothers further observed that prior to the amendment from April 1, 1989, the allowance under the said section was confined to debts and loans which had becomes irrecoverable in the accounting year. Without advertising the above extracted circular, it was opined that with effect from April 1, 1989, 'all that the assessees had to show was that the entire bad debt was written off as irrecoverable.' One year later an altogether different Bench of Gujarat High Court had to decided the question of whether it was enough if the assessee writes off the debt as bad in its books of account and whether the assessee company need not establish the debt to become bad, in Deputy CIT v. Patidar Ginning and Pressing Co. [1999] 157 CTR 177 (Guj). The appeal of the Revenue was dismissed. It is our view that the Circular No. 551 (see [1990] 183 ITR (St.) 7) leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become had in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The circular expressed the hope that this litigation would be eliminated by permitting a debt to be treated as a bad or irrecoverable no sooner it was written off in the books of the assessee concerned.”

“21. In the submission as given above, it is evident that the assessee has written off the amount of Rs.48,45,000/- in the case of M/s. Oson Construction Pvt. Ltd. This is an un-disputed fact. The additional evidence as filed also have confirmation from M/s. Oson Construction Pvt. Ltd. as on 31.03.2001, a copy of the PAN as downloaded from the website, Master Data copy from ROC website as well as the copy of the bank statement. The ld. AO in his report dt. 30.1.2001 also does not dispute the existence of correct PAN pertaining to M/s. Oson Construction Pvt. Ltd. The genuineness of the transaction also had not been doubted or suspected by the ld. AO. Be that as it may, in view of the binding decision of the Delhi High Court and the Madhya Pradesh High Court as deliberated in para 10 to 12, the assessee deserves to succeed. As such, the addition of Rs.48,45,000/- on account of M/s. Oson Construction Pvt. Ltd., written off by the assessee is deleted.”

“22. Next we may take up the case of Manish C. Zaveri, wherein an amount of Rs.2,50,000/- has been written off by the assessee. The ld. AO has discussed the addition at page 5 of the impugned order. The ld. AO has made the addition, for the reason that no fresh evidence was filed. I have already deliberated upon the issue of admission of fresh evidence in paras 15, 17, 18, 19 & 20. The correct PAN has already been submitted to the ld. AO. In the remand report he has not disputed the correctness of the PAN. Subsequently, this amount which had been written off has already been shown as recovered in A.Y. 2008-09. As such, as long as the ld. AO has not disputed the writing off of the bad debts, it is immaterial that a decision would have to be based on fresh evidence, considering the binding decisions of the Jurisdictional High Court, apart from Madhya Pradesh High Court discussed in para 10 to 12 above. Thus, the addition of Rs.2,50,000/- on account of Manish C. Zaveri is deleted.

“25. Next we may discuss the case of Nagin T. Sanghvi, wherein an amount of Rs.50,000/- has been written off. This has not been discussed in the order of the ld. AO. No reasons, in other words, have been assigned. There is not ever a whisper. During the course of the appellate proceedings, confirmation from the said Nagin Sanghvi had also been filed, which has been admitted as an additional evidence in the backdrop of my discussion above in para 16 to 20. In view of the fact that the conformation had been filed from the said Nagin T. Sanghvi, which has been admitted by me for the purpose of disposal of the this appeal, the said addition of Rs.50,000/- is deleted.”

“28. In the case of Santosh Katkar, Aditya Narayan Sharma, Sachin Bhatkar & Kailashnath Yadav, the additions were made as no details were provided before the ld. AO. However, details have been provided during the appellate state and for the reasons mentioned in paras 16 -20 above, I have taken them on record as additional evidence for the purpose of disposal of the appeal. In all the four cases, confirmations had been filed by the entities. Furthermore, in all the cases the amount has been shown as recovered in A.Y. 2009-10, and disclosed as income. As such, due to the reasons recorded in the case of Shri Manish C. Zaveri, the additions made on account of writing off of debts in the case of Shri Santosh Katkar, Shri Aditya Narayan Sharma, Shri Sachin Bhatkar and Shri Kailashnath Yadav are deleted.

30. Lastly, we are left with addition of Rs.42,000/- towards staff advances, which has two parts as under :- (i) Rita Chaturvedi - Rs.40,000/- (ii) Dinesh Potdar - Rs.2,000/- The additions were made as no details were provided before the ld. AO. However, details have been provided during the appellate stage and for the reasons mentioned in paras 16 – 20 above, I have taken them on record as additional evidence for the purpose of disposal of the appeal. In both the cases, confirmations had been filed by the entities. Furthermore, in both the cases the amount has been shown as recovered in A.Y. 2009-10, as income. Thus, on account of the reasons recorded in the case of Manish C. Zaveri, above, the addition of Rs.42,000/- is deleted.”

“26. Next we may come to the following writing off of debts/losses :- (i) Anil Sekhri - Rs.5,40,000/- (ii) Architecture Autonomous - Rs.1,42,972/- No details were filed by the assessee before the ld. AO. Nor have any details been filed during the appellate state. Only bald assertions were made that the transaction relates to business of the assessee. They have not been backed by any evidence to substantiate the claim. In Cooper Engineering Ltd. vs. CIT [1982] 135 ITR 597 (Bom), it has been held that where details are not furnished by the assessee, the claim could be disallowed on the ground that assessee has not established that amount in question relating to expenditure was laid down wholly and exclusively for the purposes of busses. In CIT v. Motor General Finance Ltd. [2002] 254 ITR 449 (Delhi), it was held the failure of assessee to produce documents would justifiably result in adverse inference being drawn to the effect that if produced they would have gone against the assessee in terms of sec. 114 of the Evidence, 1872. It is clarified that this case had gone to the Supreme Court, wherein the Apex Court in the reported decision in 267 ITR 381 (SC) sent back the case to the High Court as certain facts had not been consideration. However, the Apex Court had not commented upon the issue of presumption raised u/s. 114 of the Evidence Act. Thus, the addition to the tune of Rs.5,40,000/- and Rs.1,42,972/- on account of Anil Sekhri and Architecture Autonomous are upheld. In other words, the total addition of Rs.6,82,972/- is confirmed.”

“16. The law regarding admission of additional evidence in the first appellate stage has been enunciated in ITO vs Mittal International (I) Pvt. Ltd., which has been reported in 2008-TIOL-474-ITAT-DEL (ITA No.1671/Del/04-D-Bench. It specifies the limitation in the powers of the CIT(A). In para 5, the Hon’ble Tribunal has observed as following : “5. Reading of the provisions of Rule 46A of the IT rules 1962 show that the rules specifically bars an assessee from producing any oral or documentary evidences other than the evidences produced by him during the course of proceedings before the Assessing Officer except under the conditions provided in clause (a), (b), (c) & (d) of sub-rule (1) of rule 46A. Sub-rule (2) of Rule 46A makes it compulsory on the appellate authority who is admitting such additional evidences to record his reasons in writing for such admission. The nature of additional evidence including relevancy thereof alone cannot be ground enough to admit such additional evidence. It is the exceptional circumstances as envisaged by sub-rule (1) of rule 46A that is to be the foundation for the admission of the additional evidence along with the relevancy thereof of the additional evidence. Sub-rule (3) of rule 46A makes it compulsory for the appellate authority who has admitted the additional evidences under sub-rule (1) after recording his reasons in writing as per sub-rule (2) to grant the same to the Assessing Officer to examine the evidences or documents or to cross examine the witness produced by the appellant or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant:". (emphasis supplied by me) 17. More recently, the Delhi High Court in Moser Baer India Ltd and Others vs Addl.CIT & Another (2009) 17 DTR (Del) 98 has again dissected the powers of the CIT(A) in adducing fresh evidence at the appellate stage, at pages 123 and 124, as under: "While the CIT(A) under sub s. (4) of s. 250 in disposing of any appeal before it is empowered to make further inquiry either himself or by directing the AO to do so and receive the result of the same, the assessee cannot file any fresh evidence except in accordance with the provisions of r. 46A. The r. 46A inter alia permits an assessee to adduce additional evidence only if he is able to establish that he falls under one of the following situations envisaged under the said rule: (i) Where an AO has either refused to admit evidence which he ought to have admitted; or (ii) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO; or (ii) Where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal

; or (iv) Where the AO has made the order appealed against without giving sufficient opportunity to adduce evidence relevant to any ground of appeal.

16. It is evident upon a bare reading of r. 46A that the assessee does not have a right to file additional evidence unless his case falls within one of the situations prescribed under the r.46A. The discretion to permit the assessee to adduce additional evidence lies with the CIT(A). Therefore, it cannot be said that the CIT(A) is duty bound to admit any evidence that the assessee wishes to adduce, based on which he would conduct a denovo examination of the case before him". (emphasis supplied by me)

18. In other words, the powers of the CIT(A) is extremely limited to admit any additional evidence during the appellate proceedings. The assessee has to establish that he falls within the exceptional clauses of rule 46A(1). In the petition, the assessee in para 2 has stated that there was a paucity of time given by the Id. AO for submitting the details during the course of assessment proceedings. It has been submitted that notices u/s. 133(6) were issued and on 6.2.2006, the assessee was asked to file confirmation from parties. Confirmation from some of the parties were filed on 22.7.06. Details of file Nos. (PAN) were also filed on 16.3.2006. However, the Id. AO directed to provide the details in respect of the names and addresses of the AO having jurisdiction over the 25 parties, while some PA Nos. as submitted by the assessee, were found to be incorrect and that it received the correct details contendedly on 30.3.2006 and the assessment was completed on 31.3.2006. In other words, the assessee evidences, as requisitioned by the ld. AO, which was a sufficient cause for admission of additional evidence under rule 46A.

19. Perusal of the assessment record suggests that Shri L. N. Malik, CA, who was the authorized representative of the assessee presented himself before the ld. AO on 16.3.2006. This was in response to a questionnaire issued on 6.2.2006. On 16.3.2006, the ld. AO requisitioned the assessee to furnish names and addresses of the AOs with whom the parties were assessed to tax for purposes of verification, before the sundry balances could be allowed to be written off. Some of the PA Nos. given by the assessee were checked during the course of assessment proceedings and were found to be incorrect. This was intimated to the assessee, who was requisitioned to file the correct PA No. On that date tax details (Assessing Officer etc.) was also requisitioned.

20. There is no dispute that the requisition for furnishing the names and addresses to the assessing officer of the parties was first made on 16.3.2006. No doubt the time afforded to the assessee was very short, particularly when tax details of parties engaged in business are not expected to be kept by the assessee, and therefore it is held that the assessee was prevented by sufficient cause not to have submitted the evidences as requisitioned during the assessment stage. Thus, the additional evidence is admitted. This is despite the noting on 30.3.2006 on the order sheet that any PA No. found wrong or where the PA No. is not furnished, addition would be made. It is settled law that consent does not confer jurisdiction as held in N.S. Dhingra v CIT (1973) 90 ITR 110 (Delhi), Hira Lal patni Kali v Kali Nath AIR 1962 SC 199 etc. The very fact that the assessee is in appeal fortifies this aspect. “21. In the submission as given above, it is evident that the assessee has written off the amount of Rs.48,45,000/- in the case of M/s. Oson Construction Pvt. Ltd. This is an un-disputed fact. The additional evidence as filed also have confirmation from M/s. Oson Construction Pvt. Ltd. as on 31.03.2001, a copy of the PAN as downloaded from the website, Master Data copy from ROC website as well as the copy of the bank statement. The ld. AO in his report dt. 30.1.2001 also does not dispute the existence of correct PAN pertaining to M/s. Oson Construction Pvt. Ltd. The genuineness of the transaction also had not been doubted or suspected by the ld. AO. Be that as it may, in view of the binding decision of the Delhi High Court and the Madhya Pradesh High Court as deliberated in para 10 to 12, the assessee deserves to succeed. As such, the addition of Rs.48,45,000/- on account of M/s. Oson Construction Pvt. Ltd., written off by the assessee is deleted.”

71. The above reasoning given by the ld. CIT(A) while admitting the additional evidence is self explanatory. We, therefore, do not find any infirmity in the order of the ld. CIT(A) accepting such additional evidence. Accordingly, the ground raised by the Revenue on this issue is dismissed.

ITA No.3764/Del/2004 : 2(b) That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of gross loss of Rs.30,28,829/- and retaining the G.P. Rate at 8% on the disclosed as well as undisclosed sales of Rs.17,44,130/-. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-VIII, New Delhi is against law and facts on the file in as much as the Ld. CIT(A) was not justified to arbitrarily sustain an addition of Rs.3,09,403/- made on account of low G.P. rate in respect of the gross profit declared by the appellant by its Proprietary concern M/s Litolier. : 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the addition on account of G.P. to Rs.3,09,403/- only.

Total borrowings were to the tune of Rs.57.36 crores. He observed that the total advances given to relatives, sister concern and others were Rs.63.73 crores on which interest is received to the tune of Rs.11,21,988/-. Thus, from most of the parties no interest has been received while from some parties interest had been received at the rate of 15%. He observed that the assessee on the other hand has given interest at the rate of 21% to various parties. The Assessing Officer therefore, concluded that the borrowings had not been made wholly and exclusively for the purposes of business. Accordingly, the Assessing Officer disallowed the entire interest claim at Rs.2,18,76,359/-.