COMMISSIONER OF INCOME-TAX Vs. MAKAL SUTA COTTON CO P LTD

JUDGEMENT

(1.) THIS appeal by the Revenue under Section 260a of the Income-tax Act, 1961 ("the Act" for short), is against the order of the Income-tax Appellate Tribunal, Indore Bench, dated March 26, 2004, in I. T. A. No. 502/ind of 2003 relating to the assessment year 1998-99.

(2.) THE business of the respondent-assessee consists of purchasing raw cotton, processing such cotton by ginning and pressing, and then selling the processed cotton. The assessee filed its return of income on November 27, 1998, declaring a loss of Rs. 1,11,870. The case was selected for scrutiny and notices under Sections 143 (2) and 142 (1) (ii) were issued. The assessee commenced its business transactions in August, 1997, and processing activities in November 1997. The Assessing Officer (Income-tax Officer, Itarsi) found that the balance-sheet showed Rs. 7,52,000 as paid up capital and Rs. 6,61,000 as share application money received pending allotment. The assessee's accounts also showed unsecured loans aggregating to Rs. 33,75,665 and Rs. 41,42,606 as the amount due to the suppliers of raw material (i. e. agriculturists ). The Assessing Officer, not being satisfied with these entries, called upon the assessee to prove the genuineness of the said entries and also prove the identity and creditworthiness of the creditors. The assessee filed an application dated December 20, 2000, under Section 144a before the Joint Commissioner of Income-tax, Bhopal Range, seeking a direction to the Assessing Officer to accept the credits in question. The learned Joint Commissioner passed an order on the said application with the following directions to the Assessing Officer :-"to take into account the documentary evidence submitted by counsel for the assessee before him and after giving proper opportunity make disallowances only after giving proper opportunity made disallowance only in respect of those creditors which do not fulfil the criteria for the genuineness of the creditors, debtors and share applications money. The Assessing Officer should ask the assessee to produce creditors/debtors and share money applicants in his office for enabling him to examine the genuineness. Further in respect of the creditors the Assessing Officer has reported that the same pertains to the remaining unpaid amount to the suppliers of the cotton, i. e. , the agriculturists, and that the amount was paid at the time of the transactions effected through Mandi Samiti. In view thereof, the remaining balances in the books of account in the name of such agriculturists does not appear to be genuine. The Assessing Officer may examine this aspect before completing the assessment. "

(3.) THEREAFTER, the Assessing Officer called upon the assessee to produce the creditors shown under the heads of share applicants, unsecured loans and trade creditors for examination. The assessee accordingly produced the applicants for shares, unsecured creditors and trade creditors except Kailash Bhikamchand (trade creditor) and Devi Singh (share applicant ). The Assessing Officer therefore did not accept the credits relating to the said creditor and share applicant and added a sum of Rs. 10,500 and Rs. 19,200, respectively (which were shown as amounts received from them), to the income of the assessee. In regard to two other persons, namely, Bhikaji Dhanna Lal and Radheshyam Laxmi Singh, who were produced for examination, the Assessing Officer found that they either did not own any land or owned a very small land and therefore found it improbable that a sum of Rs. 19,000 and Rs. 15,000 would be due to them for supplies. As a consequence, he also added the said amounts to the income. In regard to the other credits, the Assessing Officer was satisfied with the evidence produced, i. e. , the statement of creditors who appeared before him. Accordingly, he concluded the assessment by order dated March 30, 2001, accepting the credits as disclosed, except to the extent shown above.