ORDER
M.A. Bakshi, Judicial Member
1. Four cross appeals – two by the assessee and two by the revenue for the assessment years 1983-84 and 1984-85 and one cross objection filed by the assessee for the assessment year 1984-85 are disposed of by this common order for the sake of convenience.
2. Assessee is a private limited company engaged in the business of manufacture and export of ready-made garments. During the course of assessment proceedings for the assessment year 1983-84 the Income-tax Officer noticed payment; to M/s Ashok Embroidery and M/s U pkar Garments amounting to Rs. 66,729 and Rs. 25,639 respectively. Assessee produced bills in support of the claim of the expenditure in respect of M/s Ashok Embroidery. A confirmation letter was also furnished. However, in the case of M/s Upkar Garments, assessee could not file any confirmation letter. The Assessing Officer made inquiries in respect of these two concerns and it was found that no such concern existed at the given address. Enquiries were also made from the Union Bank of India, Shahdara, Delhi where Shri Ashok Kumar, Proprietor of M/s Ashok Embroidery was stated to be maintaining an account on comparison of the signatures in the bank account opening form and the signatures on the confirmation letter it was found that the two did not tally at all. It was also found by the Assessing Officer that some of the cheques issued by the assessee in the name of M/s Ashok Embroidery had not been credited to the said bank account. It was also found that withdrawals had been made from the aforementioned bank account within a day or so from the date of the credit of cheques. Assessee accordingly was confronted with the information collected by the Assessing Officer and was asked to produce Shri Ashok Kumar for examination. Shri Ashok Kumar was, however, not produced before the Assessing Officer nor was any other address given at which he could be contacted. The Assessing Officer treated the expenditure relating to M/s Ashok Embroidery as bogus.
3. In respect of M/s Upkar Garments, the Assessing Officer observed that the bills issued did not seem to have been issued in the regular course of business as the dates mentioned appeared to have been filled up later on. The Assessing Officer further observed that handwriting on some of the bills tallied with the writing of some of the bills of different parties and it was presumed that some one from the assessee company had prepared the bills. Since the party was neither produced nor any correct address given by the assessee, the Assessing Officer treated this expenditure as bogus. In appeal before the CIT (Appeals) it was brought to the notice of the first appellate authority that, the statement of Shri Ashok Kumar had been recorded by the Assessing Officer on 23-12-1986 in connection with the assessment proceedings for the asst. year 1984-85. A photocopy of this statement was also filed and it was urged that the payments made may be considered to be genuine.
4. With regard to the payment to M/s Upkar Garments, it was contended that the party had closed its business and that the said party had also worked for another fabricator confirmation whereof was also furnished. The payments were claimed to have been made by cheques and accordingly the expenditure was claimed to be genuine. The CIT (Appeals), however, did not accept the contention on behalf of the assessee. On the basis of the analysis of the statement of Shri Ashok Kumar, the first appellate authority has highlighted the following reasons for not accepting the claim of the assessee:
(a) Destination of some of the cheques issued in the name of M/s Ashok Embroidery was not known;
(b) the withdrawals had been made within a day or so of the deposits of the cheques;
(c) the signatures of Shri Ashok Kumar as appearing in the bank account were not tallying with the signatures under confirmation;
(d) that Shri Ashok Kumar had stated to have left the flourishing business to join the service which was unbelievable;
(e) Shri Ashok Kumar could not produce any evidence regarding owning of machines or their sale after the closure of the business nor could he produce any receipt towards payment of rent for the shop;
(f) Shri Ashok Kumar had denied of having maintained any books of account or vouchers to establish the genuineness of business carried on by him; and
(g) Shri Ashok Kumar had admitted that he had no experience of embroidery work.
5. In the case of Upkar Garments the addition was confirmed for the following reasons:
(a) Confirmation from Upkar Garments had not been furnished;
(b) party had not been produced; and
(c) the assessee had failed to establish the genuineness of the expenditure.
6. The learned counsel for the assessee contended that there was no justification for the disallowance of the expenditure of Rs. 66,729 in the case of M/s Ashok Embroidery. According to the learned counsel assessee had done everything at its end to establish the genuineness of the expenditure. The expenditure was properly vouched and the payments had been made by cheques. Though the party could not be produced during the course of assessment proceedings for the asst. year 1983-84 yet his statement had been recorded during the asst. year 1984-85 and the copy of statement was made available to the first appellate authority. According to the learned counsel, there is nothing in the statement of Shri Ashok Kumar that repudiates the claim of the assessee. Shri Ashok Kumar has admitted to have received the payment in respect of the work done. According to the learned counsel, the revenue authorities have ignored the material fact that embroidery work had been done in respect of which sale was reflected in the books of account. According to the learned counsel, even if Shri Ashok Kumar had not done the work for the assessee someone else is bound to have done the embroidery work for the assessee. According to Shri Agarwal it is nobody’s case that the payment made in respect of the work done is excessive or unreasonable, The revenue has unjustifiably treated the payment as bogus and has arbitrarily ignored the evidence produced by the assessee. Similarly, in respect of M/s Upkar Garments, the learned counsel contended that the expenditure was properly vouched and the mere fact that the party had closed the business could not mar the claim of the assessee.
7. The learned Departmental Representative, on the other hand, has supported the order of the revenue authorities.
8. We have given our careful consideration to the rival contentions. When return of income is filed by the assessee, the Assessing Officer has the options either to accept the return or to ask the assessee to support the return. The Assessing Officer has also the power to make enquiries and on the basis of the evidence produced and the material gathered by the Assessing Officer, he is to make an assessment in accordance with law. In this case assessee was asked to support the return and in respect of M/s Ashok Embroidery assessee furnished evidence in the shape of bills and evidence relating to payments having been made by means of cheques. Confirmation from the party had also been furnished. Ordinarily, the evidence produced by the assessee as above would be sufficient to support the claim of the assessee. However, the Assessing Officer made enquiries and found that there was no one existing in the name of M/s Ashok Embroidery at the given address. He also found that the signature in the bank account of Shri Ashok Kumar proprietor of M/s Ashok Embroidery did not tally with the confirmation letter filed by the assessee. This was sufficient to give rise to suspicion. The Assessing Officer justifiably asked the assessee to produce Shri Ashok Kumar and to give his address. Though the assessee had failed to produce Shri Ashok Kumar before the Assessing Officer for some reasons he was, in fact, produced during the course of assessment proceedings for the asstt. year 1984-85. His statement has been recorded. A copy of the same has been filed before the CIT (Appeals) who has considered the same on merits. A perusal of the statement of Shri Ashok Kumar recorded by the Assessing Officer reveals that he is admitted to have done the embroidery work for the assessee for 11/2 years starting from 1981. The claim of work done by him for the assessee is Rs. 80,000. In response to a question as to the situation of the business premises Shri Ashok Kumar has replied that the shop was in the corner of Gali No.9, Old Seelampur and rent of Rs. 350 per month was stated to have been paid to Smt. Bijli Devi. It has also been stated by Shri Ashok Kumar that he had purchased two machines for Rs. 2,800 which were later on sold for Rs. 2,100. In response to a question as to whether any account books had been maintained, Shri Ashok Kumar replied that some account books had been maintained but he did not have any accounts at the time of recording the statement. He is also admitted to have maintained the bank account with the Union Bank of India, Shahdara, Delhi. The statement of Shri Ashok Kumar read as a whole, in our view, supports the claim of the assessee. We may have to deal with the discrepancies pointed out by the CIT (Appeals) for confirming the disallowance.
(a) The first objection taken by the CIT(Appeals) is that destination of some of the cheques was unknown. A perusal of the statement reveals that Shri Ashok Kumar was not confronted at all about the destination of some of the cheques. We are accordingly of the view that no adverse inference could be drawn in the absence of specific question to Shri Ashok Kumar in this regard.
(b) The second objection raised is that the withdrawals had been made by Shri Ashok Kumar from the bank account within a day or so of the credit of cheques in his account. Firstly, Shri Ashok Kumar was not confronted about this aspect. Secondly, there is no abnormality in the withdrawal of amounts from the bank account in the case of a person carrying on business or profession. It is common knowledge that withdrawals are made to meet the expenses. In his statement recorded by the Assessing Officer Shri Ashok Kumar has stated that out of about Rs. 80,000 he had earned approximately Rs. 10,000. The amount of Rs. 70.000 according to Shri Ashok Kumar’s version was the expenditure incurred by him in respect of the work done for the assessee.
(c) The third objection raised is with regard to the discrepancy in the signature of Shri Ashok Kumar in the bank account as compared with the signature on the confirmation letter. Surprisingly, Shri Kumar has not been confronted with this discrepancy at all. Shri Ashok Kumar has not been asked to clarify, we see no justification for drawing an adverse inference. Assessee cannot be subjected to any addition for the Assessing Officer’s failure to make proper enquiries and investigation.
(d) The fourth objection taken for confirming the disallowance by the CIT(Appeals) is that it was unbelievable that Shri Ashok Kumar would have left flourishing business to join service. Firstly, Shri Ashok Kumar was not confronted with as to under what circumstances he joined the service. Secondly, we do not consider the earning of Rs. 10,000 from the job work done for the assessee as a flourishing business. The salary drawn by Shri Ashok Kumar from his service is also not known. Therefore, no adverse inference could be drawn from the fact that Shri Ashok Kumar joined the service.
(e) The fifth ground for confirming the disallowance taken by the CIT (Appeals) is that Shri Ashok Kumar could not prodece the evidence relating to purchase or sale of machinery used for embroidery work. Secondly, the rent receipt had also not been produced. From the statement of Shri Ashok Kumar it transpires that he was asked as to whether any machinery was purchased or used for the purpose of doing the job. He has replied that he purchased two machines for Rs. 2,800 which were later on sold for Rs. 2,100. There is no evidence on record to suggest that Shri Ashok Kumar was asked to furnish evidence relating to purchase or sale of the machinery. With regard to the payment of rent, Shri Ashok Kumar has given the name of the landlord as Smt. Bijli Devi the Assessing Officer has not made any enquiries from Smt, Bijli Devi nor has, it seems, the complete address been asked from Shri Ashok Kumar. The mere fact that Shri Ashok Kumar did not have the receipts for the rent paid would not lead to the conclusion that he did not carry on the business at the premises stated by him.
9. The other ground for confirming the disallowance taken by the CIT (Appeals) is that Shri Ashok Kumar did not maintain any books of account for the business conducted by him. From the statement of Shri Ashok Kumar, it is evident that he has admitted of maintaining some of the accounts during the course of carrying on the business/profession. Even otherwise, maintenance of books of account was not compulsory under the law for the turnover of about Rs. 80,000. Therefore, this ground also is not sufficient for sustaining the disallowance.
10. Shri Ashok Kumar had no experience of embroidery work, has been taken as a ground for disallowance. In our view, it is not necessary for a businessman, to be embroiderer in order to carry on the business of embroidery work. Normally, skilled persons are employed or engaged for performing the embroidery work. The businessman organises the job and procures the business. This ground also is not sufficient for disallowance of a claim.
11. Considering the totality of the circumstances of this case, we are satisfied that there is enough evidence to support the claim of the assessee in relation to the expenditure of Rs. 66,729 on account of embroidery work done by M/s Ashok Embroidery. The grounds taken by the revenue may give rise to suspicion but, in our view, it is not sufficient to disallow the claim of the assessee. We accordingly delete the addition of Rs. 66,729.
12. In the case of M/s Upkar Garments though assessee has furnished bills in support of the claim the Assessing Officer had found on inquiries that no such person existed at the given address. Assessee was confronted with the results of the enquiry made by the Assessing Officer and the assessee for some reasons has neither furnished confirmations from M/s Upkar Garments nor was the party produced. The address of M/s Upkar Garments for which the Assessing Officer could make enquiries was also not furnished to the Assessing Officer. Considering these facts, we are satisfied that the claim has not been properly supported and the Assessing Officer was justified in making the disallowance. The contention on behalf of the assessee that even if the payment to M/s Upkar Garments may not have been established the assessee having got his job done, the deduction ought to have been allowed to the assessee on the basis of the work done, cannot be accepted as assessee has neither established nor is there any material on record to establish that the embroidery work claimed to have been done by M/s Upkar Garments was reflected in the sale of garments made by the assessee. The claim to the ex tent of Rs. 25,629 is accordingly dismissed.
13. to 18. [These paras are not reproduced here as they involve minor issues.]
19. In respect of quality control expenses, inspection charges of Rs. 32,600 and Rs. 79,285 assessee would be entitled to deduction only if it were established that assessee had maintained a laboratory or any facility for controlling the quality of the goods. The CIT (Appeals) has referred to the report of the Assessing Officer and held that assessee has not maintained any laboratory or any other facility for quality control and inspection of goods.
19.1 Our attention was drawn to the details of salary, certificate from Inter Conti. Trade and Travel and a certificate from M/s Meenakshi Devi with and it was contended that these documents established the fact that the assessee had maintained a facility for the quality control of goods. The revenue’s case is that since the assessee had failed to establish that such a facility was maintained weighted deduction is not permissible.
19.2 In our view, the evidence on record is not sufficient to establish that assessee had maintained a facility for controlling the quality of the goods for export. However, in the interest of justice, we do not wish to close the doors of justice for the assessee on technical reasons and it would be fair if another opportunity is given to the assessee to establish its case. It is well settled principles of law that Evidence Act is not applicable to income-tax proceedings. Possibly, the reasons are that the income-tax authorities are expected to make fair assessment of tax due from the assessees without getting bogged down in technicalities. Ordinarily, onus is on the assessee to establish that all the conditions under Section 35B are satisfied in order to get a weighted deduction in respect of exports. However, when a claim is made and the evidence produced is insufficient Assessing Officer should not proceed to disallow the claim without making the assessee conscious of the insufficiency of evidence. If the assessee’s case is on a strong footing, further evidence would normally be produced as prudent taxpayers would not like their claims to be disallowed for want of evidence. If evidence is produced, the matter ends there. By this process unnecessary litigation would be avoided. The purpose of making a just and fair assessment will thus be achieved. In our view, the job of the Assessing Officers is not to play a ping pong battle of wits with the assessees nor do the Assessing Officers normally intend to harass the assessees. Considering the enormous amount of piling litigation increasing day-by-day we wish revenue authorities follow this process of confronting the assessee about the insufficiency of evidence before finalising the assessment so that unnecessary litigation could be avoided. In this case assessee has thought that the evidence produced before the Assessing Officer was sufficient to establish its claim. As it is, Assessing Officer has found it otherwise. From the records there is no evidence that assessee was ever asked to further substantiate its claim. We accordingly in the interests of justice remit this issue to the file of the Assessing Officer for deciding it afresh after giving reasonable opportunity of being heard to the assessee.
20 to 34. [These paras are not reproduced here as they involve minor issues.]