ORDER
R.K. Gupta, J.M.
1. This is an appeal by assessee against the order of CIT(A), Ajmer, dt. 16th January, 1995, pertaining to asst. yr. 1991-92. Ground Nos. 1.1 to 1.8 are in regard to the disallowance of Rs. 4,55,100 on account of cash credits. At the time of assessment proceedings the AO found that assessee received money from some cash creditors. He further noticed that there is a credit balance of Rs. 34,768 in the name of Smt. Badam Bai, a sum of Rs. 28,552 from Smt. Chitra Devi Sharma and Rs. 6,120 in the name of Smt. Dhapu Bai. The assessee was required to produce these ladies. The assessee did not produce these ladies but confirmations were filed. In these confirmatory letters it was stated that there were cash balances with these ladies and out of the said cash balances, amounts were deposited with the assessee-firm. It was further noticed by the AO that there were some more cash credits during the year which were squared up and the list was obtained. The total amount which assessee took during the year was at Rs. 4,53,100 including those of 3 ladies as stated above. The assessee filed complete details and it was explained the source of investment. The AO was not satisfied with the explanation. Therefore, he required the assessee to produce some of the cash creditors. The assessee was required to produce 10 peoples. Out of 10 peoples, 6 persons were produced before the AO and after their examination, the AO noted in his order that there is a contradiction in the statement of the assessee and the explanation filed by assessee. For example, he mentioned the name of Shri Suriya Prakash S/o Shri Bansilal from whom a sum of Rs. 5,000 was obtained by the assessee. At the time of statement it was told by Shri Suriya Prakash that he had no agricultural income as he is a driver only whereas in his affidavit filed by the assessee it was stated that the depositor had agricultural income. Similarly, in case of other persons the statements were contradictory as compared to affidavits filed by the assessee, and the AO was not satisfied at all. Therefore, he disallowed the claim of assessee and made addition of Rs. 4,53,100 as unexplained investment of the assessee. On the same reasoning, the CIT(A) confirmed the order of the AO. While confirming the order of the AO, the CIT(A) observed in his order that “in spite of specific opportunity given to the assessee, the assessee was not able to produce the depositors for examination”.
2. The same contentions were repeated before us as were made before the CIT(A) as well as before AO. It was further submitted that complete list of cash creditors were filed along with their confirmations and affidavits. It was further submitted that no opportunity was given to the assessee as only 10 persons were required to be produced and out of 10 persons, 6 persons were produced before the AO. Regarding other creditors/depositors, it was submitted by the learned counsel that no opportunity was given to the assessee to produce them as they were not required by the AO. The assessee was ready to produce all those persons and any information which was required by the AO to file the same.
3. On the other hand, the learned Departmental Representative strongly supported the orders of the authorities below.
4. We have heard the rival submissions and considered them carefully. We find that the AO has given some reasoning while rejecting the explanations filed by the assessee in support of his contentions regarding cash creditors. We also find that only 10 persons were required to be produced out of which 6 persons were produced. Total cash creditors were 43 in number and only 10 persons were required to be produced for examination. On these facts and circumstances, we are not convinced that the AO was justified in rejecting the claim of all cash creditors. CIT(A) has also not given any finding regarding the remaining cash creditors except observing that specific opportunity was given to the assessee. On the other hand we notice that all confirmations were filed and the assessee was not further confronted to file further evidence in support of the contentions of the depositors which were mentioned in their confirmations or their affidavits. In view of these facts and circumstances and to meet the ends of justice, we are of the opinion that the matter should be restored to the file of AO for giving a further opportunity to the assessee to prove genuineness of the claim. Therefore, the matter is restored to the file of AO and is further directed to give an effective opportunity to the assessee for proving his claim of deposits. This ground of the assessee is allowed for statistical purposes.
5. Ground Nos. 2.1 to 2.6 are against the trading addition on account of 300 bags which was held by the AO as sold out of books. The AO rejected the trading result of the assessee as he found that the claim of the assessee was not genuine regarding the stock of 300 bags. The assessee claimed that the stock was destroyed and was not usable for the purpose of manufacturing bidi. The assessee was doing the business of tendu leaves which are used for manufacturing bidi. In support of his contention, certificate of forest department was filed before the AO. The AO noted in his order that the certificate is of much later date whereas the claim of assessee is of 31st March, 1991. The certificate which was filed by the assessee was of 21st August, 1993. It was also noticed by the AO that the stock register which was produced by the assessee was not indicating the shortage or damaged material. Another register was also produced in which the entry was shown. The AO was in doubt as there was difference in both the stock registers. It was also noticed by the AO that as per purchase record there should be a stock of 1,207 bags whereas the assessee was showing the closing stock of 948 bags. In this way there was a difference of 300 bags. Therefore, the AO was of the view that the assessee has sold out 300 bags in the market and sale price of the same are not recorded in the books of account and he made an addition of Rs. 3,26,446. The AO did not make a separate addition of this amount as he had disallowed the claim of assessee regarding cash creditors of Rs. 4,53,100. The assessee being aggrieved of the order of the AO, argued before the CIT(A) that the claim of the assessee is genuine and all the details were furnished before AO. The certificate which was filed before AO was also relied upon by the assessee. The CIT(A) was of the view that certificate is of much later date and cannot be relied upon and for the reasons given by the AO, he confirmed the order of the AO.
6. The same contentions were repeated before us as made before the CIT(A) and it was further submitted that assessee has maintained complete record of the purchased material. It was also submitted that without making a licence the assessee cannot do the business of tendu leaves and all the transactions were recorded. Our attention was drawn on pages 204 to 210 of the paper book filed by the learned counsel. It was further mentioned that all the informations regarding the closing stocks were filed before AO and no instance was given by the AO regarding the sale of tendu leaves out of book.
7. On the other hand, the learned Departmental Representative relied upon the order of the authorities below.
8. We have considered the rival submissions carefully and perused the material on record. We have also perused the paper book pages 204A to 211 and find that these papers are in regard to inspection of stocks by the forest department of Rajasthan Government. On page 204A there is an application to the forest department for inspection of tendu leaves stock of 1991. At page 205, there is certificate of Regional Officer of the forest department that about 306 bags were found as damaged due to water and is not usable. On page 206 there is a direction from the department to inspect the godown. On pages 207 and 208 there is another report which confirmed the damaged tendu leaves during rainy season. On page 209 there is also another report regarding damaged tendu leaves and at page 210, there is a map which was certified by the forest department where the stock was stored. After perusing these papers we do not find any weight in the observation of the CIT(A) which is given by learned CIT(A) at page 4 of his order wherein it is mentioned that “apparently he has made manipulations in the books and obtained certificate from the forest authorities which are the close relations of the appellant, is easy to obtain” (sic). After noticing the certificate filed by the learned counsel, we are not able to understand that how assessee can obtain this certificate from a Government agency. Even if some relative is there, it cannot be presumed that he will issue a wrong certificate. At page 186 purchase account is shown wherein it is mentioned that 300 bags are destroyed due to water and it is further mentioned that these are not usable. This entry is made on 31st March, 1991. In view of these facts and circumstances we are of the opinion that a disallowance on account of only presumption should not be made. The AO has not given a single instance regarding sale outside books. We also notice that not a single officer of the Forest Department was summoned by the AO for verification purpose. On the other hand, the assessee furnished all details and informations as required by the AO. Therefore, the addition made on account of shortage of 300 bags is hereby deleted. This ground of the assessee is allowed.
9. Ground Nos. 3.1 to 3.2 are against the enhancement of value of closing stock which was sustained by the CIT(A). The AO made an addition of Rs. 1,50,000 by stating that the assessee was not able to prove the value of closing stock. It was also stated in the order of the AO that the assessee was required to produce evidence, i.e., sale bills which he did not produce regarding the sale. Therefore, he made an addition of Rs. 1,50,000. The CIT(A) confirmed the action of the AO by stating that since the AO has not made any separate addition, considering the facts of the case, the addition is justified and no interference is called for.
10. After hearing the rival submissions and considering the material on record, we find that AO has admitted the claim of the assessee during asst. yr. 1992-93 witch was assessed under s. 143(3) and the opening stock shown by assessee was accepted by the AO himself and we also find that complete books of account were maintained and no specific reason is given by the AO for not accepting the AO for not accepting the contention of the assessee. He only stated that the rates of closing stock shown by the assessee is not acceptable. He has not mentioned any comparable rate in the market. He simply disallowed the claim of the assessee. In view of these facts and circumstances, we do not find any justification in rejecting the claim of the assessee regarding the valuation of closing stock. Therefore, looking to the facts of this case, we delete the addition on account of enhancement of closing stock and allow this ground of the assessee.
11. In ground No. 4, the assessee has objected the sustenance of addition Rs. 14,000 out of shop expenses and telephone expenses. The AO made disallowance of Rs. 10,000 and Rs. 4,000 out of shop expenses for want of vouchers and other supporting evidence. The CIT(A) deleted this addition by stating that other disallowances are there. Therefore, this addition should be allowed to be set off against another addition.
12. We have decided other ground of appeal of the assessee where we have deleted the trading addition, therefore, this ground will be decided separately.
13. After hearing the rival submissions, we find that the AO made disallowance on account of unverifiable nature of expenses. We do not incline to interfere with the order of the AO regarding this addition. Therefore, this addition of Rs. 14,000 is sustained.
14. In last ground, the assessee has objected the 1/4th disallowance on account of jeep expenses. On the same reasoning, we are also not inclined to interfere with the order on this account also. Therefore, this ground of the assessee is also rejected.
15. In the result, the appeal of the assessee is partly allowed.
