The ACIT, Circle-2,, Surat v. M/s. Shree Shantinath Silk Indus., Surat

ITA 2322/AHD/2006 | 2003-2004
Pronouncement Date: 18-02-2010 | Result: Dismissed

Appeal Details

RSA Number 232220514 RSA 2006
Assessee PAN AAJFS6041C
Bench Ahmedabad
Appeal Number ITA 2322/AHD/2006
Duration Of Justice 3 year(s) 3 month(s) 12 day(s)
Appellant The ACIT, Circle-2,, Surat
Respondent M/s. Shree Shantinath Silk Indus., Surat
Appeal Type Income Tax Appeal
Pronouncement Date 18-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 18-02-2010
Date Of Final Hearing 10-02-2010
Next Hearing Date 10-02-2010
Assessment Year 2003-2004
Appeal Filed On 06-11-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI N S SAINI AND MAHAVIR SINGH) ITA NO.2322/AHD/2006 WITH C O NO.4/AHD/2007 (ASSESSMENT YEAR:- 2003-04) THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-2 SURAT V/S M/S SHREE SHANTINATH SILK INDUSTRIES UDHNA MAGDALLA ROAD UDHNA SURAT PA NO. AAJFS 6041 C [APPELLANT] [RESPONDENT] ITA NO.57/AHD/2007 (ASSESSMENT YEAR:- 2003-04) M/S SHREE SHANTINATH SILK INDUSTRIES UDHNA MAGDALLA ROAD UDHNA SURAT V/S THE INCOME-TAX OFFICER WARD-2(4) AAYAKAR BHAVAN MAJURA GATE SURAT [APPELLANT] [RESPONDENT] DEPARTMENT BY:- SHRI GOVIND SINGHAL SR. DR ASSESSEE BY:- SHRI S N DIVATIA ADVOCATE O R D E R PER (ACCOUNTANT MEMBER): THE CROSS APPEALS AND THE CROSS OBJECTION FILED BY THE ASSESSEE HAVE BEEN FILED AGAINST THE O RDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) DATED 08-09-20 06 FOR ASSESSMENT YEAR 2003-04. 2 GROUND NO.1 IN THE REVENUES APPEAL IS AS UNDER: 2 2 (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6 7 3 453/- MADE UNDER SECTION 41(1) OF THE ACT. 3 GROUND NO.1 IN THE CROSS OBJECTION FILED BY THE A SSESSEE IS AS UNDER:- (1) WHETHER CONFIRMATION OF RS.166120/- AND RS.1726 50/- U/S 41(1) OF THE ACT BY HONBLE CIT(A)-II SURAT IS JUSTIFIED ON THE FACTS AND IN LAW.? 4 SINCE THE FACTS AND ISSUE INVOLVED IN THE GROUND OF APPEAL OF THE REVENUE AND THE GROUND OF CROSS OBJECTION OF THE AS SESSEE ARE COMMON THEY ARE BEING CONSIDERED AND DECIDED TOGET HER AS UNDER. 5 THE FACTS OF THE CASE ARE THAT DURING THE RELEVAN T YEAR THE ASSESSEE WAS ENGAGED IN TWO TYPES OF BUSINESS. IT T RADED IN READYMADE GOODS AND ALSO PROCESSED GREY CLOTH ON JOB-WORK BAS IS. THE ASSESSEE MAINTAINED TWO SETS OF ACCOUNTS FOR THE TWO TYPES O F BUSINESS. ON A SCRUTINY OF THE LIST OF CREDITORS SHOWN IN THE ACCO UNTS PERTAINING TO THE TRADING BUSINESS THE LEARNED ASSESSING OFFICER (AO ) FOUND THAT THERE WERE FIVE CREDITORS WHOSE DUES HAD BEEN OUTSTANDING FOR SEVERAL YEARS. HE ISSUED NOTICES U/S 133(6) TO THESE PARTIES. IN T HE CASE OF THREE PARTIES THE OUTSTANDING DUES HAD ALREADY BEEN ADDE D TO THE TOTAL INCOME U/S 41(1) IN THE AY 2002-03. OF THE REMAININ G TWO M/S ASHOK CHEMICALS STATED IN WRITING THAT THEY HAD N BUSINE SS TRANSACTION WITH THE ASSESSEE WHO HAD SHOWN A SUM OF RS.1 66 120/- A S OUTSTANDING IN THE NAME OF THE SAID PARTY. WHEN ASKED TO SUBSTANTI ATE ITS CLAIM THE ASSESSEE FURNISHED FIVE BILLS PERTAINING TO MARCH 1992. SIMILAR WAS THE REACTION OF M/S KARAN ENTERPRISES AGAINST WHOM RS.1 72 650/- WAS SHOWN AS OUTSTANDING. THIS PARTY ALSO STATED IN WRI TING THAT THEY HAD NO BUSINESS TRANSACTION WITH THE ASSESSEE. THE ASSE SSEE SUBMITTED PHOTOCOPY OF BILLS ISSUED BY THE SAID PARTY IN FEBR UARY-MARCH 1994. SINCE THESE DUES WERE PENDING FOR MORE THAN THREE Y EARS THE LEARNED 3 3 ASSESSING OFFICER TOOK THE VIEW THAT THE SAID SUMS WERE NO LONGER PAYABLE AND THAT THE LIABILITY OF THE ASSESSEE TOWA RDS THESE PARTIES HAD CEASED TO EXIST. HE THEREFORE ADDED THE SUMS OF R S.1 66 120/- AND RS.1 72 650/- TO THE TOTAL INCOME OF THE ASSESSEE U /S 41(1) OF THE INCOME-TAX ACT 1961 [THE ACT]. 6 FROM THE ACCOUNTS OF THE JOB-WORK BUSINESS THE A O IDENTIFIED TWENTY THREE CREDITORS WHOM HE LISTED ON PAGES 4-5 OF THE ASSESSMENT ORDER AND TO WHOM PAYMENTS WERE PENDING FOR MORE T HAN THREE YEARS. THE ASSESSEE SUBMITTED THAT THE TOTAL LIABILITY OF RS.6 73 453/- TO THESE TWENTY THEE PARTIES STILL EXISTED AND WAS THUS PAY ABLE. HOWEVER SINCE THESE PARTIES WERE NOT WILLING TO COOPERATE THE AS SESSEE WAS NOT IN A POSITION TO PRODUCE CONFIRMATION LETTERS FROM THEM. THE AO TOOK THE VIEW THAT THE LIABILITIES AS THOSE SHOWN IN THE BOO KS OF THE ASSESSEE COULD NOT REASONABLY BE ASSUMED AS OUTSTANDING FOR SUCH A LONG PERIOD. THE ASSESSEE ON ITS PART WAS UNABLE TO SH OW ANY REASON AS TO WHY THESE LIABILITIES HAD NOT BEEN DISCHARGED. HE T HEREFORE ADDED THE SUM OF RS.6 73 453 U/S. 41(1) OF THE I. T. ACT. 7 IN THE WRITTEN SUBMISSIONS PLACED BEFORE THE LEAR NED COMMISSIONER OF INCOME-TAX (APPEALS) THE AR HAS RE FERRED TO THE WRITTEN SUBMISSIONS DATED 2/3/2006 AND 20/3/2006 W HICH WERE FURNISHED BEFORE THE AO. IT HAS BEEN FURTHER CONTEN DED THAT ALL THE THREE ADDITIONS WERE BASED ONLY ON ASSUMPTIONS AND PRESUMPTIONS SINCE EACH TIME THE AO MENTIONED THE WORDS 'REASON ABLE TO ASSUME' WHILE MAKING THE ADDITIONS. THE AO HAD FAILED TO CO LLECT ANY INDEPENDENT EVIDENCE TO SHOW THAT THE LIABILITIES H AD CEASED TO EXIST. IN SUPPORT OF HIS CONTENTIONS THE AR HAS RELIED UP ON CERTAIN CASE-LAWS. 8 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE H ELD AS UNDER:- 4 4 6. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. BEFORE PROCEEDING FURTHER IT IS NECESSARY TO TAKE A LOOK AT THE PROVISIONS OF SE CTION 41(1) OF THE I. T. ACT WHICH IS REPRODUCED AS UNDER: '41(1): WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MA DE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REF ERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVI OUS YEAR - A) THE FIRST-MENTIONED PERSON HAS OBTAINED WHETH ER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAI NED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DE EMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR B) ...... [EXPLANATION 1. - FOR THE PURPOSE OF THIS SUB-SECTI ON THE EXPRESSION 'LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILAT ERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCCESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB-SECTION BY WAY O/WRITING OFF SUCH LIABILITY IN HIS ACCOUNTS.' 6.1 THE SECTION THUS PROVIDES THAT WHERE AN A LLOWANCE OR DEDUCTION HAS BEEN MADE IN ASSESSMENT FOR ANY YEAR IN RESPECT OF A LOSS EXPENDITURE OR A TRADING LIABILITY INCURRED BY HE ASSESSEE AND SUBSE QUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS SOME BENEFIT WHETHER IN C ASH OR IN ANY OTHER MANNER WHATSOEVER OF ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR TRADING LIABILITY BY WAY OF EITHER REMISSION OR CE SSATION THE AMOUNT OR THE VALUE OF SUCH BENEFIT WHICH SO ACCRUES TO HIM SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND IS TO BE AS SESSED AS SUCH DURING THAT PREVIOUS YEAR. WHILE EARLIER THE REMISSION HAD TO B E GRANTED BY THE CREDITOR AND THE CESSATION OF LIABILITY COULD OCCUR EITHER B Y REASON OF OPERATION OF LAW OR THE DEBTOR DECLARING UNEQUIVOCALLY HIS INTENTION NOT TO HONOUR THE LIABILITY YET WITH THE INTRODUCTION OF THE EXPLANATION 1 INT O THE STATUE W.E.F. 1/4/1997 THE REMISSION OR CESSATION CAN RESULT FROM A UNILAT ERAL ACT OF THE ASSESSEE BY WAY OF WRITING OFF OF SUCH LIABILITY IN HIS ACCOUNT S. 5 5 6.2 IN THE CASE OF THE ASSESSEE WITH REGARD TO THE LIABILITY TOWARDS M/S. ASHOK CHEMICALS OF THE SUM OF RS.1 66 120 AS WELL AS THE LIABILITY TOWARDS M/S. KARAN ENTERPRISES OF RS.1 72 650 BOTH THESE PARTIE S STATED IN WRITING BEFORE THE AO THAT THEY HAD NO BUSINESS DEALING WITH THE A SSESSEE. THIS WAS INSPITE OF THE ASSESSEE PRODUCING BILLS OF PURCHASE PERTAIN ING TO THE YEARS 1992 AND 1994. THIS MEANT THAT BOTH THESE PARTIES HAD IN TH E MEANTIME WAVED THEIR RIGHT TO THE REALIZATION OF SUCH AMOUNTS. AS OBSERV ED BY THE HON. KARNATAKA HIGH COURT IN THE CASE OF LIQUIDATOR MYSORE AGENCI ES PVT. LTD. V/S. CIT 124 ITR 853 THE REMISSION OF LIABILITY ARISES WHEN THE CREDITOR VOLUNTARILY GIVES UP THE CLAIM WHILE THE CESSATION OF LIABILITY ARISES W HEN IT CEASES TO EXIST IN THE EYES OF LAW FOR ALL INTENTS AND PURPOSES. THE COURT FURTHER OBSERVED THAT IF THE LIABILITY BECOMES BARRED BY TIME AND THE CREDITOR I S NOT ABLE TO RECOVER THE AMOUNT BY ENFORCING HIS RIGHT IN A COURT EVEN THEN THE RIGHT DOES NOT COME TO AN END NOR DOES THE LIABILITY CEASE TO EXIST. A SI MILAR VIEW WAS TAKEN BY THE HON. GUJARAT HIGH COURT IN CIT V/S. SILVER COTTON M ILLS CO. LTD. (2002) 125 TAXMAN 741. HOWEVER IN DENYING ANY BUSINESS DEALIN G WITH THE ASSESSEE THE SAID TWO PARTIES HAD IMPLICITLY WAVED THEIR RIGHT T O THE SAID AMOUNTS WHICH THE ASSESSEE HAD SHOWN IN ITS BOOK AS A LIABILITY FOR S EVERAL YEARS. SINCE THE CREDITORS HAD WAIVED THEIR RIGHT AND THE ASSESSEE D ID NOT HAVE TO DISCHARGE HIS LIABILITY THERE OBVIOUSLY ACCRUED TO THE ASSESSEE A BENEFIT TO THE EXTENT OF THE VALUE OF THE SAID AMOUNTS. THEREFORE ATLEAST WITH REGARD TO THE LIABILITIES TOWARDS M/S. ASHOK CHEMICALS AND M/S. KARAN ENTERPR ISES IT MUST BE ACCEPTED THAT THERE HAD INDEED BEEN A REMISSION OF THE LIABILITIES. HENCE THE ADDITIONS OF THE SUMS OF RS.1 66 120 AND OF RS.1 72 650 UNDER THE PROVISIONS OF SECTION 41(1) OF THE I.T. ACT ARE CONFIRMED. 6.3 NOW COMING TO THE LIABILITIES TOWARDS THE TWENT Y THREE PARTIES TOTALLING RS.6 73 453 IT IS SEEN FROM THE ASSESSMENT ORDER T HAT THE AO MADE THE ADDITION UNDER SECTION 41(1) ON THE GROUND THAT SUC H LIABILITIES HAD BEEN APPEARING IN THE ASSESSEE'S BALANCE SHEET FOR MORE THAN THREE YEARS AND THAT THE ASSESSEE HAD BEEN UNABLE TO PRODUCE CONFIRMATIO N LETTERS FROM THESE TWENTY THREE PARTIES. IN THE CASE OF CIT V/S. SUGAU LI SUGAR WORKS PVT. LTD. 236 ITR 518 THE HON. SUPREME COURT OBSERVED THAT -'... . THE OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CES SATION IS THE SINE QUA NON FOR THE APPLICATION OF THIS SECTION. THE MERE FACT THAT THE ASSESSEE HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUNTS UNILATERALLY WILL NOT ENABLE THE DEPARTMENT TO SAY THAT SECTION 41(1) SHOULD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE PRINCIPLE THAT EX PIRY OF THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT COUL D NOT EXTINGUISH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCI NG THE DEBT HAS BEEN WELL SETTLED.' EVEN THOUGH THE HON. SUPREME COURT WAS DE ALING WITH THE CASE FOR THE A.Y. 1965-66 WHICH WAS PRIOR TO THE INSERTION O F EXPLANATION 1 TO THE SAID SECTION YET THE PRINCIPLE WHICH WAS LAID DOWN BY T HE COURT THAT THE EXPIRY OF 6 6 THE PERIOD OF LIMITATION UNDER THE LIMITATION ACT W OULD EXTINGUISH THE DEBT AND THAT THE CREDITOR ON ITS PART WOULD HAVE TO WA IVE OFF ITS RIGHT HOLDS GOOD EVEN TODAY. THIS VIEW OF THE HON. SUPREME COURT WAS FOLLOWED SUBSEQUENTLY IN KESARIA TEA CO. LTD. (2002) 254 ITR 464 (SC) AND CI T V/S. SILVER COTTON MILLS CO. LTD. (2002) 125 TAXMAN 741 (GUJ). IN THE CASE OF CI T V/S. CHASE BRIGHT STEEL LTD. 177 ITR 128 THE HON. BOMBAY HIGH COURT TOOK A SIMILAR VIEW IN THAT THE LIABILITY OF AN ASSESSEE DOES NOT CEASE MERELY BECA USE THE LIABILITY HAS BECOME BARRED BY LIMITATION. THE ASSESSEE HIMSELF HAS TO U NEQUIVOCALLY EXPRESS HIS INTENTION NOT TO HONOUR THE LIABILITY EVEN WHEN DEM ANDED. IT IS ESSENTIALLY THEREFORE A QUESTION OF FACT WHETHER A DEBT HAS CE ASED TO EXIST OR HAS BEEN WAIVED BY THE CREDITOR. 6.4 IN THE CASE OF THE ASSESSEE AS FAR AS THE LIAB ILITY OF RS.6 73 453 TOWARDS THE TWENTY THREE CREDITORS WAS CONCERNED NEITHER D ID THE CREDITORS WAIVE THEIR RIGHT TO THE SAID AMOUNTS NOR DID THE ASSESSEE WRIT E BACK THESE AMOUNTS IN ITS BOOKS. NOR DID THE ASSESSEE MAKE ANY UNEQUIVOCAL ST ATEMENT EXPRESSING ITS INTENTION NOT TO HONOUR THE DEBTS. THIS MEANT THAT THE ASSESSEE DID NOT OBTAIN ANY BENEFIT BY WAY OF EITHER REMISSION OR CESSATION EITHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER. SIMPLY BECAUSE THESE DEBTS HAD BEEN OUTSTANDING FOR MORE THAN THREE YEARS AND HENCE WERE APPARENTL Y COVERED UNDER THE LIMITATION ACT DID NOT RENDER SUCH DEBTS AS HAVING CEASED. MOREOVER AS OBSERVED BY THE HON. IT AT AHMEDABAD IN THE CASE O F NEW COMMERCIAL MILLS CO. LTD V/S. DCIT (2001) 73 TTJ 893 WHERE THE LIA BILITIES HAVE BEEN CARRIED FORWARD FOR SEVERAL YEARS AND NO COGENT REASON OR MATERIAL HAS BEEN PROVIDED WHILE TAKING THE VIEW THAT THE LIABILITIES HAD CEAS ED IN THE YEAR UNDER CONSIDERATION THE TAXATION OF SUCH LIABILITY U/S. 41(1) CANNOT BE UPHELD. 6.5 CONSIDERING THE TOTALITY OF THE FACTS WITH REGA RD TO THE LIABILITY OF RS.6 73 453 AND THE LEGAL POSITION BOTH UNDER THE S TATUTE AS WELL AS THE VIEWS EXPRESSED BY DIFFERENT COURTS I HOLD THAT THERE WA S NEITHER ANY CESSATION NOR ANY REMISSION OF SUCH LIABILITIES. THE ADDITION OF THE SUM OF RS.6 73 453 IS THEREFORE DELETED. 9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN RESPECT OF ADDITION OF RS.6 73 453/- MADE BY THE LEARNED AS SESSING OFFICER U/S 41(1) WHICH WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT NUMBER OF PARTIES INVOLVED IN RESPECT OF THE ABOVE AMOUNT WERE 23 PARTIES. HE CONTENDED THAT THE LIABILITIES WERE APP EARING IN THE ASSESSEES BALANCE-SHEET SINCE LONG AND AS THE ASSE SSEE WAS NOT ABLE 7 7 TO FURNISH CONFIRMATION OF ACCOUNT IN RESPECT OF TH ESE CREDITORS THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN TREA TING THE SAME AS A REMISSION OF LIABILITY AND THEREBY INCOME OF THE AS SESSEE AND THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NO T JUSTIFIED IN DELETING THE SAME. WE FIND THAT IT IS NOT IN DISPUT E THAT THE AMOUNTS IN QUESTION WERE BROUGHT FORWARD CREDIT BALANCES IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE. THESE WERE ACCEPTED AS GENUINE CRE DITS IN THE ASSESSMENTS OF EARLIER YEARS IN THE CASE OF THE ASS ESSEE. THUS IN OUR CONSIDERED VIEW MERELY NON-FURNISHING OF CONFIRMAT IONS BY THE ASSESSEE DOES NOT EMPOWER THE LEARNED ASSESSING OFF ICER TO TREAT THE AMOUNTS AS REMISSION OF LIABILITIES AND INCOME OF T HE ASSESSEE OF THE YEAR UNDER APPEAL. WE FIND THAT THE LEARNED ASSESSI NG OFFICER HAS BROUGHT NO MATERIAL ON RECORD BY MAKING ANY ENQUIRY WITH THE AFORESAID PARTIES TO SHOW THAT THE LIABILITIES WERE REMITTED BY THEM DURING THE YEAR UNDER CONSIDERATION. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). THEREFORE THE APPEAL OF THE REVENUE IS DISMISSED. 10 IN RESPECT OF CROSS OBJECTION OF THE ASSESSEE I T IS OBSERVED THAT THE ASSESSEE HAS OBJECTED AGAINST CONFIRMATION OF A DDITION U/S 41(1) OF THE ACT BY THE LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS) IN RESPECT OF RS.1 66 120/- RELATING TO M/S ASHOK CHEM ICALS AND RS.1 72 650/- RELATING TO M/S KARAN ENTERPRISES. TH E LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE POINTED O UT THAT THE ADDITION U/S 41(1) WAS MADE ON THE BASIS OF REPLY R ECEIVED BY THE AO FROM THE AFORESAID TWO PARTIES IN PURSUANCE TO THE NOTICES ISSUED U/S 133(6) OF THE ACT. THE LEARNED AUTHORISED REPRESENT ATIVE OF THE ASSESSEE PLACED AT PAGE NO.54 OF THE PAPER BOOK A C OPY OF REPLY WHICH WAS GIVEN BY M/S KARAN ENTERPRISES IN RESPECT OF TH E NOTICE ISSUED BY 8 8 THE LEARNED ASSESSING OFFICER ALONG WITH A COPY OF ITS ENGLISH TRANSLATION WHICH IS PACED AT PAGE 53 OF THE PAPER BOOK. HE POINTED OUT THEREFROM THAT M/S KARAN ENTERPRISES HAS SIMPLY STATED THAT THERE IS NO BUSINESS TRANSACTION WITH THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND HAS NOT MENTIONED ANYTHING ABOUT THE EXISTING EARLIER LIABILITY. HE ARGUED THAT FROM THIS REPLY I T CANNOT BE CONCLUDED THAT NO AMOUNT WAS DUE FROM THE ASSESSEE TO THE SAI D KARAN ENTERPRISES. THE LEARNED DEPARTMENTAL REPRESENTATIV E COULD NOT CONTROVERT THE ABOVE SUBMISSION AND MATERIALS PLACE D ON RECORD BY THE ASSESSEE. WE FIND THAT IT IS NOT IN DISPUTE THAT BA LANCE OF RS.1 72 650/- IN RESPECT OF KARAN ENTERPRISES WAS BROUGHT FORWARD BALANCE IN THE BOOKS OF THE ASSESSEE AND THE ASSESSEE HAS ALSO NOT CLAIMED TO HAVE MADE ANY BUSINESS TRANSACTION WITH THE SAID M/S KAR AN ENTERPRISES. FURTHER FROM THE REPLY RECEIVED FROM M/S KARAN ENT ERPRISES IN OUR CONSIDERED VIEW IT CANNOT BE HELD THAT M/S KARAN E NTERPRISES HAS REMITTED ANY AMOUNT IN FAVOUR OF THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION. THEREFORE IN OUR CONSIDERED OPINION THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIF IED IN CONFIRMING THE ADDITION MADE U/S 41(1) OF THE ACT IN RESPECT O F THE SAID AMOUNT OF RS.1 72 650/-. 11 IN RESPECT OF RS.1 66 120/- ADDED BY THE LEARNED ASSESSING OFFICER U/S 41(1) RELATING TO M/S ASHOK CHEMICALS NO SPECIFIC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY GOOD REASON TO INTERFE RE WITH THAT PART OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE ACCORDINGLY MODIFY THE ORDER OF THE LEARNED COMMISS IONER OF INCOME- TAX (APPEALS) TO THE EXTENT INDICATED ABOVE. THUS THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 9 9 12 GROUND NO.2 OF THE CROSS OBJECTION IS AS UNDER: (2) WHETHER HONOURABLE CIT(A)-II SURAT IS JUSTIFIE D ON THE FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.39314/- EFFECTED O UT OF TELEPHONE EXPENSES WHILE RECORDING THE POSITIVE FINDING IN FAVOUR OF T HE CROSS OBJECTIONER IN PARA- 10 (PAGE-7 TO 7) OF THE APPELLATE ORDER ? 13 THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING O FFICER FOUND THAT THE ASSESSEE HAS CLAIMED TELEPHONE EXPENSES OF RS.2 4 485/- IN ITS TRADING BUSINESS AND RS.1 72 098/- IN ITS JOB WORK BUSINESS. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT PERS ONAL USE OF TELEPHONE BY THE PARTNERS COULD NOT BE RULED OUT AN D THEREFORE MADE DISALLOWANCE OF RS.4 896/- AND RS.34 418/- BEING 20 % OF THE TWO SUMS CLAIMED BY THE ASSESSEE. 14 IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TA X (APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER OBSERVING THAT THE DISALLOWANCE MADE WAS REASONABLE. 15 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. WE FIND THAT THE AMOUNT OF 20% OF TELEPHONE EXPENSES WAS DI SALLOWED BY THE LOWER AUTHORITIES ON THE GROUND THAT PERSONAL USE O F THE TELEPHONES CANNOT BE RULED OUT. THE LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE HAS NOT DISPUTED THE ABOVE FINDING OF THE LOWER AUTHORITIES BUT SUBMITTED THAT THE DISALLOWANCE WAS QUITE EXCES SIVE. KEEPING IN VIEW THE LOCATION OF THE TELEPHONES WHICH WAS AT FA CTORY PREMISES WE FIND THAT THE DISALLOWANCE OUT OF TELEPHONE EXPENSE S WERE MADE ON ESTIMATE WITHOUT BRINGING ANY MATERIAL ON RECORD. K EEPING IN VIEW THE SUBMISSIONS OF THE ASSESSEE IN OUR CONSIDERED OPIN ION IT SHALL BE FAIR AND REASONABLE TO RESTRICT SUCH DISALLOWANCE AT 10% TO MEET THE ENDS OF JUSTICE. THUS THE DISALLOWANCE MADE IS PARTLY D ELETED AS STATED 10 10 ABOVE. THUS THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 16 WE FIND THAT THE APPEAL IN ITA NO.57/AHD/2007 FI LED BY THE ASSESSEE CONTAINS THE SAME GROUNDS AS TAKEN IN THE CROSS OBJECTION FILED BY THE ASSESSEE. THEREFORE THE APPEAL FILED BY THE ASSESSEE IS INFRUCTUOUS AND HENCE THE SAME IS DISMISSED. 17 IN THE RESULT THE APPEAL OF THE REVENUE AS WELL AS OF THE ASSESSEE BOTH ARE DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. O RDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 18 - 02 - 20 10 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 18-02-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S SHREE SHANTINATH SILK INDUSTRIES UDHNA MAGD ALLA ROAD UDHNA SURAT 2. THE ACIT CIRCLE-2 SURAT 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD