GANESH ROLLER FLOUR MILLS vs. ITO, WARD-2(3),,

ITA 69/Del/2006 for the A.Y. 1997-98 is directed against the order of the Ld.CIT(A), Muzaffarnagar dated 8.10.2015. is filed against the order of the Ld.CIT(A), Muzaffarnagar dt. 14.2.2008 wherein the penalty levied u/s 271(1)(c ) of the Income Tax Act 1961 (the Act) for the A.Y. 1997-98 was confirmed. First I take up ITA no.69/Del/06.

S.No. Name of the firm Loss (in Rs.)

1. M/s Garg Enterprises 7,42,631.78 2. M/s Chandu Lal Mohan Lal 1,50,506.00 3. M/s Sita Ram Sher Singh 1,85,233.08 4. M/s Mahalaxmi Cotton P.Ltd. 1,99,038.74 5. M/s Radha Kishan Brikhbhan 67,203.00 ============ Total: Rs. 13,44,612.91 The A.O. completed the assessment u/s 143(3) r.w.s. 263 of the Act on 25.3.2003 determining the total income at Rs.14,32,410/-.

2.1. On appeal the Ld.CIT(A), Muzaffarnagar granted relief only to the extent of Rs.67,203/- being loss suffered from trading of cotton bales with M/s Radha Kishan Brikbhan. The balance addition was confirmed. Aggrieved the assessee filed the present appeal before me.

3. I have heard Shri SVM Chaurasia, the Ld.Counsel for the assessee and Shri T.Vasanthan, Ld.Sr.D.R. on behalf of the Revenue. On a careful consideration of the facts and circumstances of the case, perusal of material on record, orders of lower authorities, case laws cited, I hold as follows.

4. The Ld.Counsel for the assessee Shri S.V.M.Chaurasia submitted that:

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, (a) detailed submissions were made with documentary evidences in the form of purchase and sale vouchers, confirmatory letters from the respective concerns, their audited balance sheet and affidavits, in support of the genuineness of the transactions as well as the genuineness of the parties with whom the assessee had entiered into transactions. The Ld.CIT(A) did not consider the written submissions and documentary evidences filed by the assessee for establishing the genuineness of the transactions and passed an order where he has confirmed the loss suffered in trading in goods with four parties namely: 1. M/s Garg Enterprises 2. M/s Chandu Lal Mohan Lal 3. M/s Sita Ram Sher Singh 4. M/s Mahalaxmi Cotton P.Ltd.

(b) that the assessee firm has been dealing in cotton and other commodities and the income/loss from such trading has been the subject matter of assessment in the earlier years. (c ) the AO had conducted detailed investigation and examined the persons connected with these firms on oath. The statement recorded by the AO when read with the documentary evidences prove the transactions.

5. The Ld.D.R. relied on the orders of the authorities below and rebutted the submissions of the assessee.

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, i Reasons given by AO Reply of the Assessee 1. 3 registered letter sent in 2000 and Firm is closed in 1999. hence registered letters 2003 not served returned back with returned back in 2000 & 2003 with remarks no remark that no such firm exists such firm exists is not such a fact on the basis of which it could be held that firm was non-existent. 2. 8 traders in and around Sanatan The Inspector made enquiries in 2000 and firm Dharam Wali Gali denied the existence was closed in 1999. name of the traders be of firm. informed and opportunity to cross examination be allowed.

1.

6.2. The asessee had produced the following documents before the A.O. as well as the Ld.CIT(A). i. Sales & purchase of cotton bales issued by M/s. Garg Enterprises. ii. Confirmatory letter of Sh Surinder Kumar, Manager of M/s Garg Enterprises confirming that the assessee firm suffered loss in purchase & sale of cotton bales. iii. Affidavit of Sh Surinder Kumar affirming that M/s. Garg Enterprises made purchases & sale of cotton bales on behalf of the assessee firm. iv. Statement of Sh Surinder Kumar, recorded on 2-3-2003. v. Statement of Sh Surinder Kumar recorded on 17-2-2003. vi. Copy of certificate dated 27-3-2000 of Excise and Taxation Officer, Bhatinda, stating that registration certificate issued to M/s. Garg Enterprises was cancelled on 1.4.1995 and the said concern was dealing in cotton seeds

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, and cotton oil. vii. Statement of Sh Surinder Kumar recorded on 25-2-2003. viii. Statement on audited account as on 31-3-1995 of M/s. Garg Enterprises along with tax audit report in Form 3CD. ix. Copy of certificate dated 10-2-2003 issued by Excise and Taxation Officer, Bhatinda. x. Report of Income Tax Inspector regarding address of the firm. xi. Letter dated 25-2-2003 written to the ITO by Sh Surinder Kumar,Manager, M/s. Garg Enterprises.

6.3. A perusal of the above documentary evidences take me to a conclusion that the assessee has demonstrated the genuineness of the transaction. The enquiry itself was taken up by the revenue authorities many years after the transaction took place.

6.4. In my view, the claim of loss of Rs.7,42,631.78 incurred by the assessee in purchase and sale of cotton bales through M/s Garg Enterprises has to be allowed.

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, 7.2. The assessee submitted as follows.

(i) Shri Som Prakash Prop M/s. Chandu lal Mohan Lal in his statement recorded on 29-1-2003 (que no. 20) admitted that draft was received from the assessee firm which was deposited in the bank. The assessee firm has obtained copy of the bank account of M/s. Chandu Lal Mohan Lal from UCO Bank bearing account no. 892 wherein the draft of Rs. 150,506/- was credited on 19-3-1997. It is therefore, clear that the statement of Sh Som Prakash recorded on 29-1-2003 wherein he has stated that he has no other bank account except ale no. 600079 opened on 10-4-1998 was not correct and might have been given under some confusion. (ii) The statement of Sh Devi Dayal, Partner of M/s. Panmeshwari Das Ghanshyam Das that he never saw Sh Som Prakash or heard his name is not acceptable as he was not a partner in the said firm during the period relevant to the AY 1997-98. Moreover, M/s. Panmeshwari Das Ghanshyam Das has filed copy of account of M/s. Chandu Lal Mohan Lal wherein sales made to the firm by M/s. Chandu Lal Mohan Lal are recorded and cheque of Rs. 2,20,139.75 and Rs. 3,58,416.46 was paid to M/s. Chandu Lal Mohan La!. These facts clearly prove that M/s. Panmeshwari Das Ghanshyam Das purchased paddy from M/s. Chandu Lal Mohan Lal and accordingly the statement given by Sh Devi Dayal on this point is not correct. (iii) M/s. Ram Kumar Vijendra Kumar is a proprietary concern of Sh Ram Kumar who is father of Sh Som Prakash Prop. M/s. Chandu Lal Mohan l.al. Both the concerns are running their business from the same premises. It is therefore, possible that payments made might have been adjusted by other transactions. Photocopies of purchase bills were given to the Income Tax Inspector in 2000 when he visited there to make enquiries and are part of the record. (iv ). Non production of books of accounts cannot be made the basis for disallowing the loss. M/s. Chandu Lal Mohan Lal has filed the vouchers in respect of purchase and sale of paddy and M/s. Panmeshwari Das

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, Ghanshyam Das which has purchased the paddy from M/s. Chandu Lal Mohan Lal has produced the books of accounts before the AO.

7.3. The assessee produced the following documentary evidences before the authorities.

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar,

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, cheque no. 820213 whereas in the bank account the loss was credited through cheque no. 949788. vi. In the case of M/s. Mahalaxmi Cotton Pvt Ud the cotton bales were purchased on 27-2-1997 and 3-3-1997 for Rs. 7,67,871.36 and Rs.7,45,441.42 respectively. On both these dated only a sum of Rs. 3,826.15 was lying credited in the bank account of the company. vii. Both parties did not produce books of accounts on the ground that these have been lost.

8.2. The assessee submitted as follows. i. That payment for the purchases made by M/s. Sita Ram Sher Singh for us was made by them in subsequent year it is not sufficient to hold the transaction as not genuine as one can purchase the goods on credit and sell on cash basis. ii. That cheque nos 820212 and 820213 are the number of cheques which was issued in favour of our bank, Union Bank of India for obtaining draft of Rs. 1,85,233.83 in favour of M/s. Sita Ram Sher Singh and Rs 1,99,038.94 in favour of M/s. Mahalaxmi Cotton Pvt Ltd. A certificated of bank in this regard was filed before the AO. iii. That purchase made by M/s. Mahalaxmi Cotton Pvt LT d amounting to Rs.7,67,871.36 and Rs. 7,45,441.42 on 29-2-1997 and 3-3-1997 with no balance in bank does not affect the genuineness of the transaction. iv. That M/s. Sita Ram Sher Singh and M/s. Mahalaxmi Cotton Pvt Ltd are sister concerns so transfer entries in each other's bank account and cash withdrawals does not affect the genuineness of purchase or sales as amount deposited in bank is to be withdrawn from bank as no interest is received in current account. v. Sh Shiv Kumar, is Partner in M/s. Sita Ram Sher Singh and Director in M/s. Mahalaxmi Cotton Pvt Ltd. He along with books of account appeared before the le! AO and requested that books be examined but the Ld AO denied to examine on the following grounds: a. In the statement recorded by Income Tax Inspector on 4-3-2001 it was ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar, stated that account books have been lost. b. That summon sent by Ld AO has not been complied with. c. That books which were to be produced might have been fabricated. In this regard it is submitted that books stated to be lost/misplaced in 2001 were available in 2003 and if summon were not complied the onus was shifted on the assessee to produce both the parties so appellant tried and requested both the parties hence they were present on the request of the assessee as a witness of the assessee. Refusal of Ld AO to entertain both the parties is against the law and principle of natural justice and so addition made by the Ld AO is not maintainable. He has not even scrutinized the details submitted by assessee. During the course of assessment proceedings before the AO and appellate proceedings before Ld CIT(A) documentary evidences were filed in support of the fact that the loss claimed in respect of both the parties were genuine. These documents are available at paper book page numbers 92- 122 and 160-240.

8.3. A perusal of the above submissions lead me to a conclusion that the loss claimed should be allowed, though there are certain deficiencies on the part of the assessee. The deficiencies are not such that the assessee’s claim could be disallowed. Hence I direct that (i) Loss of Rs.1,85,233.08 in the case of M/s Sita Ram Sher Singh;(ii) Loss in the case of M/s Mahalaxmi Cotton P.Ltd. of Rs.1,99,038.74, be allowed.

8.4. In the result the loss claimed by the assessee to the extent disallowed by the A.O. and confirmed by the Ld.CIT(A) is hereby directed to be allowed. 9. In the result the appeal of the assessee is allowed. 10. ITA 1538/Del/2008: As we have deleted the quantum addition, I hold that the penalty has no legs to stand. In the result the penalty is cancelled and the appeal is allowed.

ITA No.69/Del/2006 A.Y. 1997-98 M/s Ganesh Roller Flour Mills Muzaffarnagar,

Order pronounced in the Open Court on 15th February, 2016.