Meena Narula, Noida vs Department Of Income Tax

ITA NO. 94/Del/2009

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "E", NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No. 94/DEL/2009 A.Y. : 2003-04 Income Tax Officer, Smt. Meena Narula, Ward-2, Noida VS. Prop. M/s Indian Weaves, 11/6, Nehru Enclave, Kalkaji, New Delhi - 110 019 (PAN: ABWPN4578M) (APPELLANT) (RESPONDENT)

Department by : Sh. P. DAM. KANUNJNA, SR. DR. Assessee by : None Present

Date of Hearing : 10-03-2015 Date of Order : 18-03-2015 ORDER

PER H.S. SIDHU : JM Revenue has filed the present appeal against the impugned Order dated 25.09.2008 on the following grounds:-

1. That the Ld. CIT(A) has erred in law and on facts in allowing the

relief without appreciating the facts stated in the assessment

order u/s. 143(3) under the different heads, as stated below:-

i) Unexplained investment in factory and Rs. 9,50,000/-

building

ii) Unexplained investment in machinery & Rs. 6,11,000/-

Generator

iii) Unexplained investment in form of cash Rs. 13,86,400/-

deposits in different bank account

iv) Unexplained investment in car, furniture Rs. 1,03,496/-

1 ITA NO. 94/Del/2009

etc.

v) 20% of expenditure incurred in violation of 11,60,000/-

section 40A(3) of the I.T. Act.

2. The additions were made on the basis of discriminating documents found during the survey and during the appellate proceedings, assessee has not been able to controvert the finding of the AO.

3. The order of the Ld. CIT(A) may be set aside and the order of the AO be restored."

2. The facts relating to the issues in dispute are that the assessee

is an individual deriving income from running a Garment Export Unit

in Sector-60, Noida. She filed her return for assessment year under

consideration on 29.11.2003 declaring net profit of Rs. 11,09,439/-

and the total income of Rs. 3,32,830/- while claiming deduction of

Rs. 7,67,607/- u/s. 80HHC of I.T. Act. The case was selected for

scrutiny and statutory notices u/s. 143(2) and 142(1) were issued

and duly served upon the assessee. The AO has pointed out that

the assessee was required to produce books of accounts and

various other details and has also raised several queries. The AO

has observed that in spite of various opportunities provided to the

assessee. She failed to produce books of accounts and various other

details.

2.1 The AO has also brought on record that a survey operation u/s.

133A was conducted at the business premises of the assessee on

18.10.2005 and during survey several documents of incriminating 2 ITA NO. 94/Del/2009

nature were found at her business premises, which required logical

explanation from the assessee but the asseessee failed to offer any

proper explanation.

2.2 Besides the above, the AO has also discussed in the

assessment order about possession of various business results with

the assessee; i.e. the two audit reports bearing the signature of two

different CAs and business in the name of benami entities. The AO

has also discussed in detail about suppression of export receipts/

bank balances and also inflated purchases. The AO has also

discussed in detail about various investments made by the assessee

and also various deposits in her bank in cash, the source of which

could not be explained by the assessee. The AO for the detailed

discussion made in the assessment order then proceeded to

complete the assessment on total income of Rs. 1,43,35,437/- as

against returned income of Rs. 3,32,830/- by making various

additions including the additions in dispute vide his assessment

order dated 30.3.2006 passed u/s. 144/143(3) of the I.T. Act, 1961.

3. Aggrieved by the assessment order dated 30.3.2006 passed by

the AO, assessee filed an appeal before the Ld. CIT(A), who vide

impugned order dated 25.9.2008 has partly allowed the Appeal filed

by the Assessee.

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4. Against the aforesaid order of the Ld. CIT(A) dated 30.3.2006, Revenue is in appeal before the Tribunal.

5. The present appeal has been filed by the Revenue on 9.1.2009 which came up for hearing before the Bench many times since 25.6.2009. As per the order sheet, we have seen that most of time assessee remained absent, in spite of valid notice issued to the assessee and the Bench adjourned the case many times. We have perused the records available with us and seen that this office issued many times notices by Regd. Post to the assessee on the address, as per the assessment and appellate records, but assessee remained absent. Lastly, the notice for hearing was issued by Regd. Post for 10.3.2015 which was not received back unserved. Therefore, keeping in view of the facts and circumstances, as explained above, we are of the view that assessee is not interested to prosecute her appeal in dispute, therefore, we are proceeding to adjudicate the issues in disputes exparte qua the assessee and after hearing the Ld. DR and perusing the records.

6. Ld. DR at the time of hearing relied upon the order passed by the AO and reiterated the contentions raised by the Revenue in the grounds of appeal. He further stated that the order passed by the Ld. First Appellate Authority is not elaborated on the issues in dispute whereby he has wrongly deleted the addition in dispute and has also given the part relief to the assessee on many issues which is contrary to the law and facts of the case. Secondly, he requested that the issues in dispute may be set aside to the Ld. First Appellate Authority to decide the same, afresh under the law and to pass a speaking order.

7. We have heard the Ld. DR and perused the relevant records available with us, especially the orders passed by the Revenue

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Authority. We are of the view that the AO has adjudicated the issues in dispute and made the additions to the assessee's income which was assessed as under:-

1. Income as declared by the Rs. 3,32,830/-

assessee

2. Add : Deduction u/s. Rs. 7,76,607/-

80HHC disallowed Rs. 11,09,437/-

3. Add : Unexplained investment in business assets

i) Income as declared by the Rs. 19.00 lacs assessee

ii) Unexplained investment in Rs. 6.11 lacs machinery & Generator

iii) Unexplained investment in Rs. 17.07 lacs form of cash deposit

iv) Unexplained investment in Rs. 6.92 lacs Car, Furniture, Scooter, Fax

v) Undisclosed investment in Rs. 13.97 lacs Stock

vi) Undisclosed investment in Rs. 2.99 lacs Rs. 66,06,000/-

FDR

4. Add: Purchases out of Rs. 54,60,000/-

undisclosed sources

5. Add: 20% of exp. Incurred Rs. 11,60,000/-

in violation of section 40A(3) Total Income Rs.1,43,35,437/-

8. We find that the Ld. First Appellate Authority has adjudicated the issues vide his order dated 25.9.2008 from pages 19 to 27 as under:-

(1) "Addition of Rs.17,07,250/- on a/c of unexplained cash deposits in bank A/cs.

During appellate proceedings, the learned AR has worked out the availability of cash in appellant's bank alc. On perusal of the accounts, it is seen that the learned AR has given date-wise withdrawals from her bank account along with the dates on

5 ITA NO. 94/Del/2009

which the cash was deposited, in the bank account. Apparently, the dates of withdrawal and the dates of deposits are close which indicate that in absence of' any other undisclosed business accounts, the preponderance of probability is that 'the cash withdrawals have been deposited in her bank account appears to be logical. Though the nexus between the withdrawal and the deposit cannot be directly proved but the dates on which withdrawals have been made and the cash has been deposited does make a circumstantial evidence. Such a circumstantial evidence becomes more credible in view of the fact that no other business source/account has been found by the AO during the course of assessment proceedings or in subsequent assessment proceedings, as has been pointed out by the learned AR. Considering the over facts and circumstances of the case, the preponderance of probabilities appears to be in favour of the assessee. However, while scrutinizing the date wise withdrawals and the date of deposit, it is seen that at five places apparently there are negative balances, which works out to Rs.3,20,850/-. In the above circumstances, out of Rs.17 ,07 ,250/-, for the amount to the extent of Rs.3,20,850/-, the assessee could "not give the source thereof. Therefore, out of the addition of Rs.17,07,250/-, addition to the extent of Rs.3,20,850/- is confirmed and the balance amount deleted.

(2) Addition of Rs.19,00,OOO/- on a/c of Unexplained investment in factory building:

The AO has made an addition of Rs.19,00,000/- under the head unexplained investment in factory. building, which consisted of Rs.12,00,000/- + Rs.7, 00,0001-. The facts of the case briefly stated are that during the year the assessee has declared investment in factory building amounting to Rs.37,00,000/-. It was explained before the AO that the assessee has received a sum of Rs.25,00,000/- from her daughters through a/c payee cheques and the 'rest of investments of Rs.12,00,000/- were out of cash based transactions which the assessee 'claimed to have made through the account books of M/s Indian Weaves.

(a) Addition of Rs.12,00,OOO/-: The AO has made the addition of Rs.12,00,OOO/- by observing that Rs.12 lacs have been invested through cash based transactions for which the assessee has no explanation at all. It has been further observed that the assessee neither furnished any cashbook nor cash flow statement. Accordingly, the same was treated as unexplained income and added to assessee's total income u/s.

69 of the I.T. Act.

Before me the learned AR has furnished statement showing availability of source of Rs.12,00,000/-. However, it is seen that there is no direct evidence regarding the cash transaction but the date on which such has taken place and the availability of cash on such date shows that there is plausible nexus, which explains

6 ITA NO. 94/Del/2009

the source. However, the details furnished by the assessee in this regard indicate that an amount of Rs.2,50,000/- has, been shown .to be representing direct credit in capital account. However, in absence of relevant detail, the same cannot be accepted. Thus addition of Rs. 12,00,000/- addition to the extent of Rs. 2,50,000/- stands confirmed and the rest of the amount i.e. Rs. 9,50,000/- is deleted.

(b) Addition of Rs. 7,00,000/-

As stated above, out of Rs. 37,00,000/- invested in factory building, source of Rs.25,00,0001- was explained as the amount received by daughters through account' payee cheques. Out of Rs.25 lacs, the AO, for the reasons discussed' in the' assessment order, has accepted the source to the extent of Rs.18 lacs and the rest of Rs. 7 lac and added the same to assessee's total income on the ground that that the assessee could not justifiably explain the source of Rs. 7 lac as the lenders lack the credit worthiness.

During appellate proceedings, the learned AR has not been able to controvert the findings of the AO on factual basis. The learned AR has not specifically countered the finding of the AO regarding lack of creditworthiness of the lender. The learned AR has relied upon the ratio delivered in the case of CIT Vs. Real Time Marketing (P) Ltd (2008) 10 DTR 191 (Del) and also in case of Ram Kishan Dass Munnu Lal Vs CIT (1961) 41 ITR 452 (All.) to suggest that that there being no material link to the assessee with the amount deposited in cash and the onus lies on the department to prove that the person 'in whose name the deposits were made really belong to the assessee. The above case laws relied upon by the learned AR has no application in the instant case because the AO has brought on record that the lender has no independent source of income and, therefore, the preponderance of probabilities that the same represents unexplained income of the assessee is reasonably proved. Hence, the addition of Rs.7,00,000/- made by the AO treating the said sum as unexplained credit stands confirmed.

(3) Addition of Rs.6, 11,000/- on a/c of unexplained investment in machinery & Generator.

During the year the assessee claimed to have invested Rs.5.3 lacs in machinery and Rs. 80,000/- in generator. The AO has made the addition by observing as under:-

"It is noticeable that no loan whatsoever from any bank was obtained for the purchase of above machinery. The machinery & generator were claimed to have been purchased in cash through books of accounts, which were never produced .

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To explain the source of investment, various opportunities of being heard were given to the assessee but the assessee had no proper explanation regarding the source of investment. No cash book or cash flow statement was furnished by the assessee to support the availability of cash. The assessee could not even link up the above cash based investment with any bank. withdrawal. In such circumstances, there is no other option but to treat the same as unexplained investment and to add the same u/s 69 of LT. Act, 1961."

During appellate proceedings, the learned ,AR has worked out the availability of fund on the relevant dates. Again it is found that though apparently there may not be direct nexus between the fund available and the investment made in machinery and generator but the circumstantial evidence pointed out by the learned AR that the dates on which cash withdrawals have been made from the various banks of the assessee and the dates on which expenditure has been incurred appears to be plausible explanation for which benefit cannot be denied to the assessee; Accordingly, addition amounting to Rs.6,11 ,000/- is hereby deleted.

(4) Addition of Rs.13.97 lac on a/c of unexplained investment in stock:

The AO has made the addition by observing as under:

"From the business results enclosed by the assessee along with her income tax returns, we find that the assessee had an opening stock of just Rs.11.07 lacs at the beginning of the year and, without any big jump in income, the closing stock has been declared at Rs.71.65 lacs. The assessee's counsel has explained the increase in the stock as following:

Closing stock - RS.71.661acs

Less: Opening stock - Rs: 11.08 lacs

Rs.60.58 lacs.

Canara Bank PC limit - Rs. 36.91 lacs

Increase in Creditors Level - Rs. 9.70 lacs

Decrease in Debtors level - Rs. 18.54 lacs

Rs. 65.15 lacs

8 ITA NO. 94/Del/2009

Even if we accept the assessee's arguments regarding Bank PC limit of Rs.36.91 lacs and increase in Creditors level of Rs.9.70 lacs, the realization of debtors is also not on the cards (as discussed on page 20 to 22).

While discussing about the realization of debtors, {t is important to mention the argument of assessee's counsel in this regard submitted by him vide his letter dated 27.3.2006. The relevant excerpts from the above written submission are being reproduced hereunder: -

".....it is submitted that your goodself has not considered the entries of foreign remittances in the amount of bank of Punjab - current account correctly resulting into difference of Rs.27.43 lacs which in fact is not there. The remittances not considered/wrongly considered are detailed below:-

Date Amount Remarks

7.6.2002 512820 Not considered

21.6.2002 486600 Taken as Rs. 486000

29.6.2002 612720 Not considered

5.9.2002 1419720 Taken as Rs. 1419270

10.10.2002 1612017 Not considered

.... .. Your finding that realization of debtors is, not as per disclosed bank accounts as discussed above. Your good self will appreciate that realization of debtors is fully explainable as per the bank accounts of the assessee in view of point no. 5 above and as such there is no justification in making the said addition.

From the facts on record, it is clear that the submission of the assessee's counsel is not correct except for the fact that entry of Rs.4,86,600/- has been taken as Rs.4,86,000/- by way of typing mistake which makes the difference of just Rs.600/- only. Rest of the submissions of the assessee's counsel are not correct as is apparent from the copies of bank account submitted by the assessee only. The copies of relevant pages of the bank accounts and the assessee's submission are being enclosed for reference as Annexure-D. 'From the perusal of relevant pages of the bank account with bank of Punjab, it is clear that following entries claimed by the assessee as 'not considered' do not exist at all on. the relevant pages in the bank account with bank of Punjab:

9 ITA NO. 94/Del/2009

7.6.2002 5.12.820

29.6.2002 6,12,720

10.10.2002 1612017

Total 27,37,557

Since the above claim of the assessee has been proved to be wrong, the claim regarding the realization of debtors is not acceptable.

Since the claim of realization of debtors is not true, the justification given by the assessee's counsel remains limited to Rs.46,61 lacs only which calls for the addition of Rs.13.97 lacs for the unexplained capital addition in stock u/s 69 of LT. Act, 1961."

During appellate proceedings, the learned AR has taken general plea that the assessee has made sufficient cash withdrawals and, therefore, the addition on account of unexplained investment in stock is not sustainable.

I have considered the submissions of the learned AR. The learned AR has not been able to point out any circumstantial evidence to support his contention. The plea of the learned AR that there is an overall availability of cash, which explain the investment in stock is a general plea which lack credibility. There is absolutely no nexus / direct plausible explanation regarding the said investment and accordingly, the addition on account of U Investment in stock amounting to Rs.13.97 lacs made by the AO is hereby confirmed.

(5) Addition of Rs.2.99 lacs on a/c of unexplained investment in FDRs:

The AO has made the addition by observing as under:

"The assessee has also declared FDR of Rs. 3,85,400/- with AEPC as on 31.3.2003. Since the same were not the part of balance sheet as on 31.3.2002, the investment pertains to the financial year 2002-03 only. Regarding the source of investment in the above FDRs, the assessee was able to submit the explanation regarding the FDRs of Rs. 86,400/- only.

Regarding the timing, the amount and the source of investment regarding rest of the FDRs - no proper explanation has been filed by the assessee. The assessee could not even link up the above investment with any bank withdrawal. It is also important to mention here again that no cash book or cash flow statement has been furnished by the assessee."

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During appellate proceedings, the learned AR has again taken the plea that there is an overall availability of cash, which cover this investment and therefore no addition is called for' on this account. The plea of the learned AR is again not acceptable. The assessee has not been able to furnish any evidence, which could be directly or indirectly linked to the said investment. Hence the plea of the learned AR regarding source of investment in FDRs. remains unexplained even at the appellate state. Hence the action of the AO in making addition of Rs.2.99 lacs treating it as unexplained investment in FDRs stands confirmed.

(6) The next issue challenged by the assessee vide ground No.8 is against the addition of Rs.54,60,OQOI- made by the AO under the head 'purchases out of undisclosed sources.' During appellate proceedings, it has been stated by the learned AR that relief of this amount has already been given by the AO vide rectification order passed U/s 154 of LT. Act. In view of this fact, no specific adjudication is called for in respect of this ground taken in appeal.

(7) Disallowance of Rs. 11.60 lacs u/s 40A(3 ):

Vide Ground No. 9 the appellant has challenged the action of the AO in making disallowance of Rs.11.60 u/s 40A(3). The AO has made the disallowance by observing as under:

"If we have a look upon the trading & P&L Account enclosed along with the return of income filed by the assessee, we find that the assessee has declared the purchases of Rs. 1.64 crores. The assessee has also declared the trading expenses of Rs.50.51 lacs in trading account and the revenue expenses of Rs.18.32 lacs in P/L account which means that the assessee has claimed total business expenses of Rs.2.33 crores.

If we have a look on the balance sheet enclosed along with the return of income filed by the assessee, we find that there is an increase in trade creditors by Rs.9.70 lacs (Rs.41.07 lacs - 31.37 lacs) during the year. The assessee has also shown the expenses payable of Rs.2.18 lacs at the end of year. The assessee also had the cash balance of Rs.92,000/- at the beginning of year.

If we deduct the increase in creditors (Rs.9.70 lacs) and expenses payable of (Rs.2.18 lacs) and opening cash balance (Rs.92,000/-), we find that the assessee has claimed to have made purchases and business expenses of about Rs.2.20 crores which are supposed to be withdrawn from the bank accounts declared by her. [The assessee's counsel has contended that we should deduct the creditors of Rs.4I.07 lacs but only the increase in creditors is to be deducted].

11 ITA NO. 94/Del/2009

But the surprising factor here is that there are huge cash withdrawals from the bank (the destinations of withdrawals are unknown and no cash book or cash flow account has been furnished by the assessee during the long assessment proceedings) which do not leave any room for the payments actually made through account payee cheque/DD as provided in section 40A(3) and, the violation of these provisions is clearly, on the cards on the basis of facts on record.

It is highly surprising that the withdrawal entries of about Rs.1.28 crores only can be termed as other than cash withdrawals. Even among this Rs.1.28 crores, lot of withdrawals appear to be bearer cheque withdrawals on the face of it but the same have been treated as 'cheque withdrawals' while giving the benefit of doubt to the assessee . Following is the break-up of bank wise withdrawals made by the assessee during the year.

Name of Bank Withdrawals (other than cash withdrawals) Amt. (Rs.) (in lacs)

Bank of Punjab - Current Alc 82.95

Global Trust Bank - Current Alc 5.99

Canara Bank - current a/c 43.91

PNB, Patparganj Duty Drawback A/c 0.60

PNB, ICD, Duty Drawback A/c NIL

Canara Bank - PC Limit A/c NIL

Total 132.75

Thus, out of the total expenses claimed to be actually incurred (payment made) for, the purchases/business expo (Rs.2.20 crores), the assessee has paid Rs.l.33 crores through modes other than cash out of declared Bank Accounts. Rest of Rs.87 lacs have been paid either through undisclosed bank accounts or through modes other than crossed cheque/crossed DD.

Now there are only two options. First is to consider the investment of Rs.87 lacs as having made through undisclosed Bank Accounts and to make addition of Rs.87 lacs u/s. 69 of the l.T. Act, 1961. The second is to consider the same as having been made in violation of the provisions of section 40A(3) out of cash withdrawals made from the undisclosed back accounts.

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In the interest of justice, the second option is being exercised here. Giving the maximum leverage to the assessee, the expenses of Rs.29 lacs (1/3rd of the total expenses) are presumed as not covered by the provisions of section 40A(3). (The benefit of cash balance of Rs.92,666/- has already been given to the assessee for incurring the petty business expenses).

If we apply the provisions of section 40A(3) on rest of the expenses of Rs.58 lacs. there is a clear disallowance of Rs.11.60 lacs on this account. It is worthwhile to mention here that, in the absence of books of account, there is no other option but to decide the issue on the basis of best judgment while considering the facts on record.

In view of the facts on record, there is no option but to treat the business of Rs.58 lacs as having been made in violation of the provisions of section 40A(3). Accordingly, an addition of Rs.11.60 lacs is made on: this account."

During appellate proceedings the learned AR has submitted that the AO has made the addition on presumption basis & there is nothing on records, which suggests the payments in violation of section 40A(3). The learned AR has argued that in the absence of any evidence brought out by the AO, no disallowance can be made on the basis of mere presumption.

The submissions of the learned AR have been considered. Perusal of 'assessment order shows that the AO has made the addition on the basis of presumption without bringing on record the specific transaction made in cash. In the absence of any categorical findings by the AO regarding specific transaction made in cash, no disallowance could be made as held by various Hon'ble Courts. Hence the estimated disallowance of Rs.11.60 lacs made U/s 40A(3) is hereby deleted.

(8) The appellant, vide ground No.1, has contended that the AO was not justified in disallowing Rs.7,76,607/- being the deduction claimed U/s. 80HHC. During appellate proceedings, the learned AR has pointed out that the assessee has already been allowed the. claim of deduction of Rs. 7,76,607/- by the AO vide his order passed U/s 154 of LT. Act. However, during appellate proceedings, the learned AR has taken a plea that in case any of the additions are confirmed in. appeal, the assessee is entitled for higher claim of deduction U/s 80HHC of LT. Act. The plea of the learned AR has been considered and finds 13 ITA NO. 94/Del/2009

that the same has no merit. The deduction U/s 80HHC is to be allowed in terms of the provisions of the Act. During appellate proceedings, the learned AR has not been able to prove the nexus between the additions made by the AO, which have been confirmed in appeal, and the export business of the appellant. In view of this the claim of the learned AR for higher deduction u/s. 80HHC has no basis. Hence, the plea taken by the learned AR on this score is hereby rejected.

(9) Vide ground No.5 the appellant has contended that the AO was wrong and illegal in making an addition of Rs.6.92 lacs to the income of the assessee as unexplained investment in car, furniture, scooter and fax. During appellate proceedings; the learned AR has submitted that out of the addition made of Rs.6,92,201/-, the AO has given a relief of Rs.5,24,534/- vide his rectification order passed U/s 154 of the Act remaining an addition of Rs.1,67,667/- on this account. Now, during appellate proceedings, the learned AR has explained the source of Rs.1,67,667/- as under:

Margin money for car (date of Rs. 77723/- Out of BOP withdrawal finance 30.11.02) of Rs. 4.15 lacs on 26.11.2002.

Margin money for scooter (date Rs. 10273/- Out of BOP withdrawal of finance 28.10.02) of Rs. 40000/- on 10.10.2002.

Fax (bill dated 11.11.02) Rs. 16000/- Out of BOP withdrawal of Rs. 5.65 lacs on 02.11.2002.

Furniture Rs. 64171/- Out of available cash as sufficient cash withdrawal are there as per charge showing availability of cash.

The submission of the learned AR has been considered. Out of investment of Rs.1 ,67,667/-, the source of investment to the extent of Rs.77,223/- (margin money tor car), RS'.10,273/- (margin money for scooter and Rs.16,000/- (for fax) appears satisfactorily explained to be out of BOP withdrawals, as stated above. Hence there is no justification for making addition to such extent.

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However, as regards the investment in furniture to the extent of Rs.64, 171/-, the learned AR has explained the source there of to be out of available cash. This explanation is of general nature as the same is not supported by any proper evidence. Hence out of Rs.1 ,67,667/-, addition to the extent of Rs.64, 171/- is confirmed and the balance is deleted."

9. With regard to ground 1(i) regarding deletion of addition of Rs. 9,50,000/- on account of unexplained investment in factory and building is concerned, we find that the AO has made an addition of Rs.19,00,000/- under the head unexplained investment in factory. building, which consisted of Rs.12,00,000/- + Rs.7, 00,0001-. The assessee has declared investment in factory building amounting to Rs.37,00,000/- and explained before the AO that the assessee has received a sum of Rs.25,00,000/- from her daughters through a/c payee cheques and the 'rest of investments of Rs.12,00,000/- were out of cash based transactions which the assessee 'claimed to have made through the account books of M/s Indian Weaves.

9.1 Relating to Addition of Rs.12,00,OOO/- is concerned, The AO has made the addition of Rs.12,00,OOO/- by observing that Rs.12 lacs have been invested through cash based transactions for which the assessee has no explanation at all. The AO observed that the assessee neither furnished any cashbook nor cash flow statement. Accordingly, the same was treated as unexplained income and added to assessee's total income u/s. 69 of the I.T. Act. We find that the assessee produced a statement showing availability of source of Rs.12,00,000/ before the Ld. CIT(A) during the appellate proceedings and which shows there is no direct evidence regarding the cash transaction but the date on which such has taken place and the availability of cash on such date shows that there is plausible nexus, which explains the source. However, the details furnished by the assessee in this regard indicate that an amount of Rs.2,50,000/-

15 ITA NO. 94/Del/2009

has been shown to be representing direct credit in capital account. However, in absence of relevant detail, the same cannot be accepted. Thus in our considered opinion, Ld. CIT(A) has rightly confirmed the addition to the extent of Rs. 2,50,000/- and the rest of the amount i.e. Rs. 9,50,000/- is deleted. In the background of the aforesaid discussions, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid manner.

10. With regard to ground 1(ii) regarding deletion of addition of Rs. 6,11,000/- on account of unexplained investment in machinery and generator is concerned, we find that the assessee claimed to have invested Rs.5.3 lacs in machinery and Rs. 80,000/- in generator. The AO has made the addition by observing as under:-

"It is noticeable that no loan whatsoever from any bank was obtained for the purchase of above machinery. The machinery & generator were claimed to have been purchased in cash through books of accounts, which were never produced .

To explain the source of investment, various opportunities of being heard were given to the assessee but the assessee had no proper explanation regarding the source of investment. No cash book or cash flow statement was furnished by the assessee to support the availability of cash. The assessee could not even link up the above cash based investment with any bank. withdrawal. In such circumstances, there is no other option but to treat the same as unexplained investment and to add the same u/s 69 of I.T. Act, 1961."

10.1 We find that during appellate proceedings, the learned counsel of the assessee has worked out the availability of fund on

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the relevant dates. Again it was found that though apparently there may not be direct nexus between the fund available and the investment made in machinery and generator but the circumstantial evidence pointed out by the learned counsel of the assessee that the dates on which cash withdrawals have been made from the various banks of the assessee and the dates on which expenditure has been incurred appears to be plausible explanation for which benefit cannot be denied to the assessee; Accordingly, Ld. CIT(A) has rightly deleted the addition of Rs.6,11 ,000/-. In the background of the aforesaid discussions, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid manner.

11. With regard to ground 1(iii) regarding deletion of addition of Rs. 13,86,400/- on account of unexplained investment in form of cash deposits is concerned, we find that during the appellate proceedings, the learned counsel of the assessee has worked out the availability of cash in assesse's bank alc. On perusal of the accounts, it is seen that the learned counsel for the assessee has given date-wise withdrawals from her bank account along with the dates on which the cash was deposited, in the bank account. Apparently, the dates of withdrawal and the dates of deposits are close which indicate that in absence of' any other undisclosed business accounts, the preponderance of probability is that 'the cash withdrawals have been deposited in her bank account appears to be logical. Though the nexus between the withdrawal and the deposit cannot be directly proved but the dates on which withdrawals have been made and the cash has been deposited does make a circumstantial evidence. Such a circumstantial

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evidence becomes more credible in view of the fact that no other business source/account has been found by the AO during the course of assessment proceedings or in subsequent assessment proceedings, as has been pointed out by the learned AR. Considering the over facts and circumstances of the case, the preponderance of probabilities appears to be in favour of the assessee. However, while scrutinizing the date wise withdrawals and the date of deposit, it is seen that at five places apparently there are negative balances, which works out to Rs.3,20,850/-. In the above circumstances, out of Rs.17,07,250/-, for the amount to the extent of Rs.3,20,850/-, the assessee could "not give the source thereof. IN view of the above, we find considerable cogency in the finding of the Ld. CIT(A) to delete the addition of Rs.13,86,400/- and Rs.3,20,850/- is confirmed. In the background of the aforesaid discussions, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid manner.

12. With regard to ground 1(iv) regarding deletion of addition of Rs. 1,03,496/- on account of unexplained investment in car, furniture etc. is concerned, we find that considerable force in the contention of the Assessee that the AO was wrong and illegal in making an addition of Rs.6.92 lacs to the income of the assessee as unexplained investment in car, furniture, scooter and fax. We find that during the appellate proceedings; the learned counsel of the assessee has submitted that out of the addition made of Rs.6,92,201/-, the AO has given a relief of Rs.5,24,534/- vide his rectification order passed U/s 154 of the Act remaining an addition of Rs.1,67,667/- on this account. Now, during appellate proceedings,

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the learned counsel of the assessee has explained the source of Rs.1,67,667/- as under:

Margin money for car (date of Rs. 77723/- Out of BOP finance 30.11.02) withdrawal of Rs.

4.15 lacs on 26.11.2002.

Margin money for scooter Rs. 10273/- Out of BOP (date of finance 28.10.02) withdrawal of Rs.

40000/- on 10.10.2002. Fax (bill dated 11.11.02) Rs. 16000/- Out of BOP withdrawal of Rs. 5.65 lacs on 02.11.2002. Furniture Rs. 64171/- Out of available cash as sufficient cash withdrawal are there as per charge showing availability of cash.

12.1 Ld. CIT(A) has rightly observed that out of investment of

Rs.1 ,67,667/-, the source of investment to the extent of Rs.77,223/- (margin money tor car), RS'.10,273/- (margin money for scooter and Rs.16,000/- (for fax) appears satisfactorily explained to be out of BOP withdrawals, as stated above. Hence there is no justification for making addition to such extent. However, as regards the investment in furniture to the extent of Rs.64,171/-, the learned counsel of the assessee has explained the source there of to be out of available cash. Ld. CIT(A) held rightly held that this explanation is of general nature as the same is not supported by any proper evidence. Therefore, the Ld. CIT(A) has rightly held that out of Rs.1,67,667/-, addition to the extent of Rs.64, 171/- is confirmed and the balance addition of Rs. 1,03,496/- is deleted. In the background of the aforesaid discussions, we are of the considered view that no interference is called for in the well reasoned order passed by the 19 ITA NO. 94/Del/2009

Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid manner.

13. With regard to ground 1(v) regarding deletion of addition of Rs. 11,60,000/- on account of 20% of expenditure incurred in violation of section 40A(3) of the I.T. Act is concerned, we find AO has made the disallowance by observing as under:

"If we have a look upon the trading & P&L Account enclosed along with the return of income filed by the assessee, we find that the assessee has declared the purchases of Rs. 1.64 crores. The assessee has also declared the trading expenses of Rs.50.51 lacs in trading account and the revenue expenses of Rs.18.32 lacs in P/L account which means that the assessee has claimed total business expenses of Rs.2.33 crores.

If we have a look on the balance sheet enclosed along with the return of income filed by the assessee, we find that there is an increase in trade creditors by Rs.9.70 lacs (Rs.41.07 lacs - 31.37 lacs) during the year. The assessee has also shown the expenses payable of Rs.2.18 lacs at the end of year. The assessee also had the cash balance of Rs.92,000/- at the beginning of year.

If we deduct the increase in creditors (Rs.9.70 lacs) and expenses payable of (Rs.2.18 lacs) and opening cash balance (Rs.92,000/-), we find that the assessee has claimed to have made purchases and business expenses of about Rs.2.20 crores which are supposed to be withdrawn from the bank accounts declared by her. [The assessee's counsel has contended that we should deduct the creditors of Rs.4I.07 lacs but only the increase in creditors is to be deducted].

But the surprising factor here is that there are huge cash withdrawals from the bank (the destinations of withdrawals are unknown and no cash book or cash flow account has been furnished by the assessee during the long assessment proceedings) which do not leave any

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room for the payments actually made through account payee cheque/DD as provided in section 40A(3) and, the violation of these provisions is clearly, on the cards on the basis of facts on record.

It is highly surprising that the withdrawal entries of about Rs.1.28 crores only can be termed as other than cash withdrawals. Even among this Rs.1.28 crores, lot of withdrawals appear to be bearer cheque withdrawals on the face of it but the same have been treated as 'cheque withdrawals' while giving the benefit of doubt to the assessee . Following is the break-up of bank wise withdrawals made by the assessee during the year.

Name of Bank Withdrawals (other than cash withdrawals) Amt. (Rs.) (in lacs)

Bank of Punjab - Current Alc 82.95

Global Trust Bank - Current Alc 5.99

Canara Bank - current a/c 43.91

PNB, Patparganj Duty Drawback A/c 0.60

PNB, ICD, Duty Drawback A/c NIL

Canara Bank - PC Limit A/c NIL

Total 132.75

Thus, out of the total expenses claimed to be actually incurred (payment made) for, the purchases/business expo (Rs.2.20 crores), the assessee has paid Rs.l.33 crores through modes other than cash out of declared Bank Accounts. Rest of Rs.87 lacs have been paid either through undisclosed bank accounts or through modes other than crossed cheque/crossed DD.

Now there are only two options. First is to consider the investment of Rs.87 lacs as having made through undisclosed Bank Accounts and to make addition of Rs.87 lacs u/s. 69 of the l.T. Act, 1961. The second is to

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consider the same as having been made in violation of the provisions of section 40A(3) out of cash withdrawals made from the undisclosed back accounts.

In the interest of justice, the second option is being exercised here. Giving the maximum leverage to the assessee, the expenses of Rs.29 lacs (1/3rd of the total expenses) are presumed as not covered by the provisions of section 40A(3). (The benefit of cash balance of Rs.92,666/- has already been given to the assessee for incurring the petty business expenses).

If we apply the provisions of section 40A(3) on rest of the expenses of Rs.58 lacs. there is a clear disallowance of Rs.11.60 lacs on this account. It is worthwhile to mention here that, in the absence of books of account, there is no other option but to decide the issue on the basis of best judgment while considering the facts on record.

In view of the facts on record, there is no option but to treat the business of Rs.58 lacs as having been made in violation of the provisions of section 40A(3). Accordingly, an addition of Rs.11.60 lacs is made on: this account."

14. We find that during appellate proceedings the learned counsel of the assessee has submitted that the AO has made the addition on presumption basis & there is nothing on records, which suggests the payments in violation of section 40A(3). He further argued that in the absence of any evidence brought out by the AO, no disallowance can be made on the basis of mere presumption. Ld. CIT(A) has observed that on perusal of the assessment order it was seen that the AO has made the addition on the basis of presumption without bringing on record the specific transaction made in cash. In the absence of any categorical findings by the AO regarding specific transaction made in cash, no disallowance could be made as held by various Hon'ble Courts. IN view of the above, we find considerable cogency in the finding of the Ld. CIT(A) to

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estimate the disallowance of Rs. 11,60,000/- on account of 20% expenditure incurred in violation of section 40A(3) of the I.T. Act. In the background of the aforesaid discussions, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid manner.

15. In the result, the Appeal filed by the Revenue stands

dismissed.

Order pronounced in the Open Court on 18/3/2015.

Sd/- Sd/-

[T.S. KAPOOR] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 18/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant -

2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT

TRUE COPY By Order,

Assistant Registrar, TAT, Delhi Benches

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