Income Tax Officer vs C. Chandrashekar & Ors. on 29 September, 2000

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Income Tax Appellate Tribunal – Bangalore
Income Tax Officer vs C. Chandrashekar & Ors. on 29 September, 2000


I. C. Sudhir, J.M.

1. In these appeals, the Department has impugned the order dt. 31st March, 1995, of the CIT(A)-II, Bangalore, mainly on the following grounds, we therefore, dispose of all these appeals vide a common order for the sake of convenience and brevity. These grounds are :

(i). The CIT(A) erred in deleting the addition made, which is the value of unaccounted stock of fabrics found at the premises of the assessee.

(ii). The CIT(A) ought to have considered the fact that there was no evidence to disbelieve the ownership of stock of fabrics, which belong to the assessee and the value of which has been treated as unaccounted stock.

(iii). The CIT(A) ought to have considered the fact that the decision of the Tribunal, Bangalore in firm’s case on same point has not been accepted by the Department and RA has been filed on 17th November, 1994, vide IRA No. 18 to 30/C/1994-95 which is still pending before Tribunal.

2. The learned Departmental Representative relied heavily on the orders passed by the AO. According to him, stocks of yarn and fabrics found during the course of search operations on 9th October, 1990, at 10, Maldarpet, Bangalore-2, were actually unaccounted stocks. The plea of the assessee that the said stocks were post-search paid for in cash was vehemently challenged by the learned Departmental Representative.

3. On the other hand the learned counsel of the assessee Sri Lakshminarasimhan highlights the observations of the CIT(A). According to him the AO has wrongly presumed that the stocks found during the search were unaccounted. According to him the purchase of the stocks in dispute were duly reflected in the returns filed subsequently and the suppliers of goods were paid in cash subsequent to the date of search. According to the learned counsel the impugned stocks were lying with the assessees ‘on approval’ basis which were received from the weavers. It is submitted that this is an accepted practice in the trade and no ulterior motives be attributed to the assessees. It is further contended that the stock suppliers (i.e., weavers) have been paid off and the moneys used for such payments have been fully reflected in the documents accompanying the return of income. Sri Lakshminarasimhan has also drawn our attention to the orders of the Tribunal in ITA Nos. 1342, 1343 & 1344/Bang/1993, dt. 22nd August, 1994, for asst. yr. 1990-91 [reported as Devi Silks vs. Asstt. CIT (1995) 51 TTJ (Bang) 287] pertaining to the firms wherein the present assessees are also partners. In these orders, the Tribunal has accepted the concept of receipt of goods ‘on approval’ as a business practice in the trade of the assessees. Further, the R.A. of the Revenue has also been rejected by the Tribunal against the said order vide R.A. Nos. 565 to 567/Bang/1994 for the asst. yr. 1990-91.

4. We have heard the rival submissions and perused the materials on record and gone through the orders and decisions brought before us. The main grievance of the Revenue is against the view of the CIT(A) by way of which he has accepted the contention of the assessee that there was no unaccounted money utilised to purchase the stocks found on search and that no addition was called for in the assessment in the asst. yr. 1991-92. We find that the learned CIT(A) has passed a well-reasoned order which is a speaking one. We reproduce the relevant portions of the common order passed by the CIT(A).

“3. I have considered the submissions made by the representatives on behalf of the appellants. I have also perused the orders passed by the AO.

The fabrics to the tune of Rs. 4,23,162 was found at the premises raised. No statement was recorded from Sri C. Ranganatha, Sri C. Chandrashekar, Sri C. Mohan and Smt. Sharadamma. On the contrary, the statement was recorded from Shri C. Govindappa who is the brother of Shri C. Ranganatha, Shri C. Chandrasekar and Shri C. Mohan. Smt. Sharadamma is the step-mother of Sri C. Govindappa. Sri C. Govindappa had stated under s. 132(4) of the Act that the fabrics belong to Sri C. Ranganatha and Sri C. Chandrashekar. The statement of Sri C. Govindappa was not acted upon by the AO. The AO went contrary to the recorded statement from Sri C. Govindappa. The appellants were not allowed to cross-examine Sri C. Govindappa.

The trade practice of getting fabrics on ‘approval basis’ is not abnormal in this line of business. In other words, the purchase of fabrics on ‘approval basis’ is, thus, a well-known feature in this line of trade. The purchases in the appellants’ cases were supported by self-made delivery vouchers and cash payments had been made on various dates by drawing funds from the firms in which the appellants were partners.

However, the plea of the representatives that, in no case, cash purchases were asked to be proved, is not correct on the part of the appellants and their representatives. Purchases, whether cash or credit, have to be proved by the appellant when asked or pressed by the Department to do so. The appellant cannot escape from this responsibility.

The AO was not satisfied with the payments made to the weavers only for the fault of not recording their addresses of the weavers on the cash receipts. This is not correct on the part of the AO because, the appellants have recorded the addresses of most of the weavers on the self-made vouchers/cash receipts. They have not maintained any cash books/ledgers, but, only note books in which the self-made vouchers are affixed. I have gone through the note books at random in which the addresses of the weavers on the cash receipts/self-made vouchers were recorded. Of course, the addresses of the weavers were not complete. But this does not go against the appellants. This is the normal practice in this line of business when the weavers were innumerable. The trade is such that complete addresses of the weavers, mostly illiterate, cannot be possible. This cannot be insisted upon having regard to the nature of the business. I have gone through the totalling of Rs. 61,504, Rs. 1,26,303, Rs. 1,27,716 and Rs. 1,07,639 in the cases of Smt. Sharadamma, Sri Ranganatha, Sri C. Chandrashekar and Sri C. Mohan and the claims of the four appellants are found to be in order with slight, negligible and marginal variation in the figures which do not matter much for deciding these appeals. The payments had been made to the weavers by 31st March, 1991 (more than two years and nine months prior to the date of assessment order, dt. 20th December, 1993) and these payments had been acknowledged by the weavers.

Under these facts and circumstances of the case, I find that there is considerable force in the submissions made by the representatives, on behalf of the appellants in paras. 2(vi), (vii) and (viii) above. I have no hesitation in deleting the entire additions of Rs. 1,07,639, Rs. 1,26,303, Rs. 1,27,716 and Rs. 61,504 in the cases of Shri C. Mohan, Sri C. Ranganatha, Sri C. Chandrashekar and Smt. Sharadamma, respectively.”

5. After perusing the aforesaid, we do not find any force in the arguments of the Revenue. Respectfully following the decision of the Tribunal (supra), we do not find any reasons to interfere with the orders of the learned CIT(A).

6. In result, the appeal is dismissed.

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