ORDER
R.S. Syal, A.M.
1. This appeal by the assessee is directed against the order passed by the learned CIT(A) on 23rd Sept., 2005 in relation to the asst. yr. 2000-01.
2. First ground is against the observations of the learned CIT(A) that the “Authorised Representative ought to have avoided such baseless ground”. It is a settled legal position that the assessee is within his right to assail the assessment order before the learned CIT(A) insofar as it is prejudicial to his interest. The question whether a ground is baseless or not has to be decided by the assessee when appeal is instituted and then it comes within the domain of the appellate authority to decide it on merits. Such types of observations are not expected from an Officer of the rank of CIT(A). I, therefore, expunge these observations from the impugned order.
3. Second ground is against the reduction in trading addition from Rs. 24,952 to Rs. 15,000. The facts of the case are that a survey action was taken under Section 133A on 22nd Nov., 1999 wherein it was found that cash was short by Rs. 1852 and stock was in excess by Rs. 51,816. From the computation of income, copy placed at p. 19 of the paper book, it is found that the assessee made a surrender of Rs. 55,000 during survey. The AO observed that the assessee in his statement has admitted vide answer to question No. 12 that he did not issue sales bill fully. Certain other inconsistencies were also found on the basis of which it was opined that the provisions of Section 145 were attracted. As against the income of Rs. 15,741 shown by the assessee, the AO estimated it at Rs. 40,000 and made the addition for the remaining amount of Rs. 24,952. In the first appeal the learned CIT(A) upheld the invoking of provisions of Section 145 but reduced the addition to Rs. 15,000. The assessee is in appeal against the balance addition sustained.
4. I have heard both the sides on the point and perused the relevant material on record. It is clear that the survey action transpired the availability of excess stock and shortage in cash that necessitated the making of surrender of Rs. 55,000, which is apparent from computation of income filed by the assessee. When both the cash and stock were not correct, how it can be inferred that the books of account were properly maintained ? It is further found from the statement of the assessee recorded at the time of survey, a copy of which is available at pp. 23 onward of the paper book that the assessee admitted in response to question No. 12 that he was issuing sale bills in some cases and in certain other cases the adjustment was made on order/estimate. Under these circumstances I am of the considered opinion that the learned CIT(A) was justified in upholding the applicability of Section 145 of the Act. Coming to the quantum of addition it is found that the assessee had shown net profit of Rs. 15,741 to which the AO made addition of Rs. 24,952 and the learned CIT(A) allowed relief to the tune of Rs. 9,485 thereby sustaining the addition to the tune of Rs. 15,000. In my considered opinion there is no justification for allowing any further relief on this count. This ground is, therefore, not allowed.
5. Third ground is against the confirmation of addition of Rs. 21,490 made by the AO on account of low household withdrawals. It was noted by the AO that the assessee had shown household withdrawals at Rs. 5000 upto the date of survey. The expenditure on household was claimed from his capital account by the assessee at Rs. 26,422 and Rs. 21,490 was stated to have been contributed by Smt. Ratan Devi wife of the assessee from her tailoring and tuition income. The AO recorded the statement of Smt. Ratan Devi who could not give any evidence or particulars as to stitching and tuition income. She further could not explain as to how much amount was contributed by her. The AO treated sum of Rs. 21,490 as unexplained, which was claimed by the assessee having been contributed by her wife towards household expenses. The learned CIT(A) confirmed the AO’s action. Ground No. 5 is also based on the statement of Smt. Ratan Devi in respect of which addition under Section 68 was made for Rs. 18,500. The AO, on the basis of her statement, came to the conclusion that she had not given any loan to the assessee. The action of the AO was echoed in the first appeal.
6. I have heard both the sides and perused the relevant material on record. The statement of the lady had been placed at p. 15 of the paper book. It is clear that she admitted not to have advanced any loan but the fact of the matter is that the learned Authorised Representative has strongly objected to not allowing any opportunity to the assessee to cross-examine Smt. Ratan Devi. It is a settled legal position that no material can be utilized against the assessee which has been gathered at his back and opportunity has not been allowed to cross-examine the person whose statement is sought to be used against the assessee’s interest. Since the statement of Smt. Ratan Devi was not confronted to the assessee nor the assessee was allowed any opportunity to conduct cross-examination, in my considered view the reliance on such statement to the prejudice of the assessee cannot be sustained. In my considered opinion, it would be just and fair if the impugned order on the above referred two scores is set aside and the matter is restored to the file of the AO. I order accordingly and direct him to decide these two issues afresh, as per law, after allowing reasonable opportunity of being heard to the assessee. Needless to mention that the assessee would be given opportunity of cross-examining Smt. Ratan Devi.
7. Ground No. 4 is against the addition of Rs. 4,000 made under Section 69C as unexplained expenditure incurred on the Mahurat of the shop.
8. During the course of survey, it was stated by the assessee that a sum of Rs. 4,000 was incurred on the Mahurat. No such expenditure was claimed in the books of account. By treating it as emanating from undisclosed sources, the AO made addition, which was confirmed in the first appeal. The learned Authorised Representative strenuously argued that such addition had no basis. In the alternative, it was claimed that if the addition was liable to be made, then the deduction for expenses should be allowed as Mahurat expenses were allowable deduction. On the contrary, the learned Departmental Representative relied on the mandate of the provision to contend that the addition was rightly sustained.
9. I have heard both the sides and perused the relevant material on record. It is noted that the assessee himself admitted in the course of survey to have spent Rs. 4,000 on Mahurat of shop. This amount was not declared in the books of account and the natural corollary that follows is that it was spent out of undisclosed expenses. Such unexplained expenditure comes within the sweep of Section 69C. Insofar as the alternative prayer of the assessee for allowing deduction on account of Mahurat expenses is concerned, I am afraid that it cannot be allowed in view of the proviso to this section as per which such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as deduction under any head of the income. This ground is, therefore, not allowed.
10. The only other effective ground is against the confirmation of addition of Rs. 60,000 made by the AO under Section 68 on account of credit appearing in the name of Smt. Mishri Devi.
11. The assessee had shown credit of Rs. 60,000 in the name of Smt. Mishri Devi who was mother of the assessee (wrongly mentioned as grandmother). In support of the genuineness of this credit, the assessee furnished a copy of her return disclosing income from stitching charges, etc. which the AO found to have been furnished in July, 2001 after issuance of notice to the assessee under Section 143(2). The AO made addition, which was confirmed in the first appeal.
12. I have heard both the sides and perused the relevant material on record. It is not disputed that the sum of Rs. 60,000 was disclosed in the name of assessee’s mother who had filed her return of income for this year showing stitching charges, etc. after issuance of notice under Section 143(2). On a specific query raised from the Bench, the learned Authorised Representative could not give any evidence of the lady having filed any IT return in the past or in the future. On being asked as to why she was not produced for examination, the learned Authorised Representative stated that she could not be produced for reasons beyond assessee’s control. It was prayed that another opportunity be granted to the assessee. The Hon’ble Jurisdictional High Court in CIT v. Kishorilal Santoshilal (1995) 129 CTR (Raj) 450 : (1995) 216 ITR 9 (Raj) has held that all the three necessary ingredients, viz., the identity, capacity and the genuineness of the transaction must be proved so as to establish the genuineness of the credit. Taking into consideration the facts in entirety, I am of the opinion that it would meet the ends of justice if the impugned order on this score is set aside and the matter is restored to the file of the AO. I order accordingly and direct him to decide this issue afresh as per law after allowing a reasonable opportunity to the assessee. If the assessee fails to prove the genuineness of the credit in the fresh proceedings to the satisfaction of the AO, the latter would be justified in making the addition.
13. In the result, the appeal is partly allowed for statistical purposes.