ORDER
D.K. Tyagi, J.M
As these appeals belong to the same assessee, they are disposed of by this consolidated order dealing with each appeal separately.
ITA No. 3750/Del/2000:
2. This is a departmental appeal against order dated 5-6-2000 of the Learned CIT (A)-X, New Delhi.
2.1 The lst Ground, taken by,the department, is as under:
“(1) That the Learned CIT (A) has erred in law and facts of the case by giving a relief of Rs. 17,012 under the head freight charges.”
2.2 The brief facts of the case, as they emerge from the order of the assessing officer, are that the assessee deals in chemicals. The assessing officer made an addition of Rs. 5,17,012 on account of the Freight paid by the assessee on three grounds ie., (i) The purchases of the assessee got reduced by 16.5% this year but the Freight Charges have increased by 26 per cent as compared to the last years, (ii) the Freight Charges have been paid to the sister-concern and (iii) the assessee has not paid the Freight Charges on competitive rates in the market by calling tenders.
Before the Learned CIT (A) the assessee had taken the same stand what was taken before the assessing officer that due to labour trouble in the plant of M/s. Modi Alkalies & Chemicals Ltd., Alwar, the assessee was compelled to purchase the goods from M/s. Tata Chemicals Ltd., Mithapur. As the distance from Delhi to Alwar is about 160 kms. and the distance between Delhi and Mithapur is about 1300 kms. The difference in the distance was about 8 times and the Freight increase was only about 3 times. Secondly, it was explained that the increase in the Freight Charges in the months of February and March 1997 was due to increase in the transport cost of Soda Caustic Lye from Rs. 443 to Rs. 550 per ton which was increase of 24 per cent. This increase was accepted by the assessee-firm because the price of diesel had gone upto Rs. 9.05 per litre in January to March 1997 as compared to Rs. 6.99 in the earlier year which was an increase of 29.5 per cent. Similarly the petroleum products, auto parts, tyre, tube, etc. had become costlier as compared to the Financial year 1995-96. The Learned CIT (A) deleted this addition by agreeing with the submissions of the assessee. Aggrieved by this order of the Learned CIT (A), the department is in appeal before us.
2.3 At the time of hearing the Learned Departmental Representative relied on the order of the assessing officer while the Learned authorised representative of the assessee relied on the order of the Learned CIT (A).
2.4 Heard both the parties and perused the record. The Learned CIT (A) has deleted this addition after careful consideration of all the relevant papers and the details of the Freight Charges paid during the last year and this year. The Learned CIT (A) found that there was valid reason for increase in the Freight Charges. He did not agree with the assessing officer that the payment was made to the sister concern as the assessee had supplied the details of the Freight Charges, which was not disputed by the assessing officer. In the light of these facts, we are not inclined to interfere with the order of the Learned CIT (A) on this issue and the same is upheld. This ground of the department is dismissed.
2.5 The 2nd ground, taken by the department, is as under:
“(2)That the Learned CIT (A) has erred in law& facts of the case by giving arelief of Rs. 2,05,966 on account of addition of cash credits under section 68 of Income Tax Act.”
2.5-1 This ground relates to the amount of Rs. 30,000 of Gift received from Shri Vinod Verma and Rs. 1,75,966 an advance received from M/s. Asha Udyog. The assessing officer has treated them as cash credits under section 68 of, the Income Tax Act, 1961.
2.5-2 In course of the assessment proceedings the assessing officer noticed that Shri Ashok Soni, partner of the assessee-firm, introduced Rs. 10,000 by taking loan from his son who was also a partner in the firm. The son of the assessee, Shri Rajat Soni has received a gift of Rs. 10,000 from his uncle to finance his father. The assessing officer found that Shri Vinod Verma who gave Rs. 10,000 as gift to Shri Rajat Soni, had also given another gift of Rs. 20,000 to Shri Rajat Soni, Partner of the firm. The assessing officer observed in his order that Shri Rajat Soni was a major personality and a partner of the firm. So this gift without any occasion and purpose and no reciprocability was just to introduce the capital in the firm. The assessee firm and the partner have not shown such love and affection to the donor. This clearly shows that the amount was paid out of books and raised in the form of gift. Accordingly, he added this amount of Rs. 30,000 as cash credit under section 68 of the Income Tax Act, 1961. The Learned CIT (A) has deleted this addition by holding that the reason given by the assessing officer for not accepting this gift, was not valid – the donor being a close relative of Shri Rajat Soni and the transaction being not doubted by the assessing officer. Aggrieved by this order of the Learned CIT (A), the department is in appeal before us.
2.5-3 At the time of hearing the Learned Departmental Representative relied on the order of the assessing officer and the Learned authorised representative of the assessee relied on the order of the Learned CIT (A).
2.5-4 Heard both the parties and perused the record. We find that the Learned CIT (A) has passed a well-reasoned order after taking into consideration the facts of this case in detail. Therefore, it does not require any interference on our part. The order of the Learned CIT (A) on this issue, is upheld.
2.5-5 As far as an addition of Rs. 1,75,966 as cash credit under section 68 of the Income Tax Act, 1961, is concerned, the assessing officer noticed that the assessee has received advance from the customers. The assessing officer issued notice under section 131 to M/s. Asha Udyog from whom advance of Rs. 1,75,966 was received. The notice was received back unserved. The assessing officer made enquiries through the Income Tax Inspector who reported that no such firm was in existence. Therefore, in the absence of any verification, the assessing officer held that the assessee has introduced cash of Rs. 1,75,966 and added back the same under section 68 of the Income Tax Act, 1961. Before the Learned CIT (A) it was argued by the assessee that M/s. Ashok Udyog was a regular customer of the assessee-firm and copies of the Account in the books of the assesseefirm were also filed. It was further submitted that there was no cash credit and the accounts were settled through the bills and cheques. This firm had suspended its business due to sealing of its factory under the Pollution Control Measures taken by the Delhi Government. The assessee firm had business dealings with M/s. Ashok Udyog in the succeeding years also. The Learned CIT (A) has deleted this addition for these reasons. Aggrieved by this order of the Learned CIT (A) now the assessee is in appeal before us.
2.5-6 At the time of hearing the Learned Departmental Representative relied on the order of the assessing officer and the judgment in the case in CIT v. Precision Finance (P) Ltd. (1994) 208 ITR 465 (Cal.) wherein it has been held that mere payment by cheque is not a conclusive proof of payment while the Learned authorised representative of the assessee relied on the order of the Learned CIT (A).
2.5-7 Heard both the parties and perused the record. We find that while deleting this addition the Learned CIT (A) has observed as under:
“I have considered the submissions made by the authorised representative of the appellant and the facts of the case. I have also perused the ledger copy of the Account of M/s. Ashok Udyog. It is found that on 1-4-1996 there was debit balance of Rs. 2,62,765 and during the year the assessee raised various bills against which, the payments have been received by cheques at the end of the year. The total receipt is Rs. 13,65,068 as against which bill has been raised for Rs. 11,89,092. Therefore, the credit balance at the end of the year was Rs. 1,75,966. The assessing officer has added this amount treating it as cash credit, which is totally wrong. In fact, it is a trade liability and trade liability cannot be rejected without bringing sufficient material to probe that the particular liability is a bogus liability. There is evidence on record that the assessee had business dealing with the party and it is submitted that this factory is closed due to government decision to close the factory. Under the circumstances, it was incumbent upon the assessing officer to find out the actual location and present whereabouts of the party and to verify the fact. Simply because the Inspector was unable to locate the party, the assessing officer cannot jump to the conclusion that this is a bogus creditor and treat the same as cash credit under section 68 of Income Tax Act. Therefore, on the given facts and circumstances of the case, I find that there is no proper justification for making this addition of Rs. 1,75,966 and the same is deleted.”
2.5-8 Since the Learned CIT (A) has passed a well-reasoned order, we are not inclined to interfere. On this issue the order of the Learned CIT (A) is upheld. This ground of the department is dismissed.
2.6 Regarding Ground Nos. 3 and 4 the Learned Departmental Representative submitted that there was no need to adjudicate on these grounds, as they appear in the assessees appeal in the second round after being set aside earlier.
2.7 The next ground, taken by the department is as under:
“(5) That the Learned CIT (A) has erred in law & facts of the case by giving a relief of Rs. 6,965 under the head “Telephone expenses (residence).”
2.7-1 The assessing officer disallowed Rs. 20,000 out of Rs. 26,070 incurred for the Telephone at the residence of the managing Partner, Shri Ashok Soni. This expense had been disallowed by the assessing officer on the ground of personal use as it was installed at the residence. The Learned CIT (A) has restricted this disallowance to 50 per cent of the expenses incurred on the ground that even the residential telephone was being used business purposes. We do not find any infirmity in the order of the Learned CIT(A) and the same is upheld. This ground of the department is also dismissed.
2.8 The next Ground, taken by the department, is as under:
“(6) That the Learned CIT (A) has erred in law & facts of the case by giving a relief of Rs. 7,000 under the head: Telephone expenses (Other).*
2.8-1 The assessing officer disallowed Rs. 12,000 out of expenses incurred on Office Telephone. This disallowance has also been made for personal use. The Learned CIT (A) restricted this disallowance to Rs. 5,000. On this point also, we are not inclined to interfere with the order passed by the Learned CIT (A). This ground of the department is also dismissed.
2.9 The next ground, taken by the department, is as under:
“(7) That the Learned CIT (A) has erred in law & facts of the case by deleting an addition of Rs. 4,00,000 which was made under section 41(1) of the Income Tax Act.
2.9-1 The assessing officer found that the assessee had raised a loan of Rs. 4 lakhs from Smt. Annu Choudhary. This was outstanding for the last 3 to 4 years on which interest was also not paid. The assessing officer observed in his order that either the assessee had no intention to pay back the loan or paid the same outside the books of account. In course o the assessment proceedings the assessee filed a letter from Smt. Annu Choudhary stating that :
“My credit balance with your firm stands at Rs. 4 lakhs. I hereby given this money to my nephew, Shri Rajat Soni.”
2.9-2 On this basis, the assessing officer concluded that this liability ceased to exist and added Rs. 4 lakhs under section 41(1) of the Incometax Act, 1961. Before the Learned CIT (A) the assessee filed confirmation from the creditor vide Letter dated 8-2-2000 and it was argued that till that date the liability of Rs. 4 lakhs to Smt. Annu Choudhary remained. On 8-2-2000 the creditor gifted this amount to Shri Rajat Soni, her nephew and partner in the firm. It was also submitted that the assessee or the successor is liable to pay this amount to Shri Rajat Soni even after 8-2-2000 and the liability has not ceased even in the assessment year 2000-01. The Learned CIT (A), held that during the year under appeal, the liability existed and the addition, on the ground of cessation- of liability, was not sustainable. Therefore, the addition was deleted by him. We do not find any infirmity in the order of the Learned CIT (A) on this issue in the light of these facts of the case. This ground of the department is also dismissed.
2.10 In the result, the appeal of the department is dismissed.
ITA No. 4575/Del/2002:
3. This is assessees appeal against order dated 29-8-2002 of Learned CIT (A)XIX, New Delhi. 3.1 The effective ground, taken by the assessee, is as under:
“2. That the learned CIT (A) XIX, New Delhi, is not justified in disallowing commission payment of Rs. 3,79,880.*
3.1-1 During the assessment proceedings, for verification of the payment of commission by the assessee, the assessing officer issued notices to the various parties. In respect of the 7 persons, involving an amount of Rs. 2,08,784, Notices were returned by the Postal Authority as Unserved. In respect of the other 4 persons, involving a sum of Rs. 1,71,960 the recipient of the commission did not respond to the notices, issued by the assessing officer. Subsequent to this, the assessing officer required the assessee to produce the parties for deposition. The assessee submitted that all the commissions have been paid by Cheque and the bank Statement has already been submitted. He further submitted that the income-tax particulars of all the commission agents have been given to give the relevant information. The assessing officer did not accept this explanation of the assessee and made an addition of Rs. 3,79,880 on the ground that the assessee has not made any effort to produce the persons to whom the commission was paid, notices issued were either received back unserved or the parties did not respond to the notices; the assessee has failed to prove that the payments have actually been made and such payments were made for purpose of the business and the parties have rendered services to the assessee. The parties, who were not found at the addresses given by the assessee, should have easily been contacted by the assessee who could have produced them for deposition. Aggrieved by this order of the assessing officer, the assessee filed appeal before the Learned CIT (A). Before the Learned CIT (A) the contention of the assessee was that the assessing officer has not made full investigation of the information and the documents available with him. The bank accounts of the assessee from which the payment of commission was made by Cheque, were also furnished. The assessing officer has not taken any action against the persons to whom notices under section 131 were served and not complied with. The assessing officer should have verified the payment of commission from the assessment record of the parties to whom the commission was paid. Reliance was also placed on the decision of the Calcutta High Court in the case in Mather & Platt (India) Ltd. v. CIT (1987) 168 ITR 493 (Cal) wherein it has been held that if the assessee established the identity of the payees to whom summons were issued by the department, Notices sent to them are coming back “Undelivered is irrelevant as it would not mean that they were not in existence at the time of the payment. The assessee further submitted before the Learned CIT (A) that all the information on the basis of which the assessing officer could have established the validity of the commission paid were given. The payment through the bank clearly established that the commission was, in fact, paid by the assessee for the purpose of the business. The Learned CIT (A) after going through the facts and the submissions, made before him, confirmed this addition by holding that the identity and the. services rendered have not been proved by the assessee and he had failed to prove the basic ingredient for allowability of the deduction. He also relied on the judgment of the Bombay High Court in the case of Goodlas & Nerolac Paints Ltd. v. CIT (1982) 137 ITR 58,62 (Bom) while confirming this addition. Aggrieved by this order of the Learned CIT (A), now the assessee is in appeal before us.
3.1-2 At the time of hearing the Learned authorised representative of the assessee vehemently reiterated the stand taken by him before the Learned CIT (A). He submitted that ,the identities of the persons to whom the commission was paid, were given in the form of names and addresses; copies of the bank statement was also given to show that the payment has been made through the cheques and the income-tax particulars of all the Commission Agents were also given. Thus, the assessee has discharged its primary onus regarding the identity of the persons; the genuineness of the transactions and the department had not discharged its onus by rebutting the contention of the assessee. The case law relied on by the Learned CIT (A) is not relevant to the facts of this case. That case, according to him, relates to the secret commission paid to the customers /employees. Therefore, he prayed that the Lower Authorities were not justified in making and sustaining this addition.
3.1-3 The Learned Departmental Representative, on the other hand, supported the orders of the Lower Authorities and argued that the assessing officer issued the Notices under section 131 for verification of the Commission paid to the various parties and since those parties did not appear before him for this verification, he was left with no option but to make this addition. In cases where notices became unserved, opportunities were given by the assessing officer to the assessee and, therefore, it could not be said that identities of the persons were established. The details of services rendered were also not given by the assessee. He, therefore, argued that the addition made by the assessing officer and sustained by the Learned CIT (A), should be upheld.
3.1-4 In reply, the Learned authorised representative of the assessee submitted that the new addresses of the persons were given by the assessee but no fresh notices under section 131 were issued by the assessing officer. Regarding the services rendered by these parties, he submitted that the details of commission paid were duly filed before the assessing officer and the Learned CIT (A). Finally he said that since no proper verification either on the part of the assessing officer or the Learned CIT (A), has been done, the addition should be deleted.
3.1-5 Heard both the parties and perused the record available on file. It is an admitted fact that the names and addresses of the parties to whom the payments were made, have been given, the bank statement showing payments though the Cheques was also not disputed and the income tax particulars of the Commission agents have also not been disputed. We are of the opinion that the assessee has discharged its primary onus of establishing the genuineness of the transactions and the assessing officer has not rebutted the contentions of the assessee. We also find that the case law relied on by the Learned CIT (A), while confirming this addition, is not relevant to the facts of this case. The case of Goodlas & Nerolac Paints Ltd. (supra) relates to the secret commission, paid to the employees/customers to keep them happy, was claimed as selling expenses. The names and addresses to which commission was alleged to have been paid, was not disclosed to the assessing officer. Therefore, it was held that the expenses claimed were not allowable. The facts of the instant case are quite different. The assessee has not only given the names and addresses but also other supporting evidences were also given regarding the genuineness of the transactions. Therefore, we are of the considered opinion that the addition made by the assessing officer and confirmed by the Learned CIT (A), is not sustainable. The same is, therefore, deleted. This ground of the assessee is therefore, allowed.
4. In the result, the appeal of the department is dismissed and that of the assessee is allowed.