COMMISSIONER OF INCOME TAX, GORAKHPUR Vs. ABDUL HASEEB

JUDGEMENT

(1.) THE assessee is engaged in the business of Banarasi sarees on commission basis. For the assessment year 1999 -00, the assessee filed a return declaring income of Rs.2,20,920/ - along with audited profit and loss account, capital account and balance sheet. In this case, a survey under Section 133 of the Income Tax Act, 1961 (hereinafter referred to as the Act) was conducted at the business premises of the assessee. While the case was being processed under Section 143(1)(a) of the Act, the case was selected for scrutiny. The books of accounts that was produced were impounded under Section 141(3) of the Act.

(2.) IT transpires that in the survey, certain loose papers were found and since the same was not produced during the course of assessment proceedings, the books of accounts was rejected and a turnover of Rs.2,50,00,000/ - was estimated by applying a percentage of commission of 1.75%. The Assessing Officer on perusal of the balance sheet noticed that the assessee had shown a liability for supply of sarees at Rs.1,32,39,095/ -. On this basis, the assessee was directed to produce the weavers for examination on oath. It transpires that nine weavers were produced in the case of the sister concern M/s Saidullah and company in which it was stated that sarees to the Fatima group including the assessee was sold and that these weavers further submitted that since the transactions was more than three years old they could not give the exact outstanding amount but maintained that liabilities were outstanding against the assessee. The Assessing Officer contended that since the liabilities in the balance sheet remained unexplained and was unreliable but since the assessee had sold some of the sarees of the weavers to different customers, the outstanding liabilities was reduced and a sum of Rs.33,81,167/ - was added in the income of the assessee as unexplained credit in the balance sheet towards weaver's liability under Section 68 of the Income Tax Act.

(3.) THE appellant, being aggrieved, filed an appeal, which was allowed. The appellate authority held that the Income Tax Officer committed an error in rejecting the books of accounts without even looking into them only on the ground that some loose papers were found in the course of survey, which could not be produced as it had been set on fire by the rioters due to Shia -Sunni riots. The appellate authority found that the books of accounts could not be rejected in such a cavalier fashion. With regard to the unexplained liability the appellate authority found that the reasons given by the Commissioner of Income Tax in its order under Section 264 of the Act passed in the case of the assessee and his brothers for the assessment year 1998 -99, the addition under Section 68 of the Act was liable to be deleted. The appellate authority found that no addition could be made only because the weaver could not remember the exact amount that was to be paid by the assessee to them.