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ITO, Ward-2, Sonepat. Vs. Inderjeet Kaur, Prop. M/s Babbar Jewelers, 76, Jamaipura, Sonepat.
October, 26th 2015
           DELHI BENCH `C' : NEW DELHI


                    ITA No.3381/Del/2011
                  Assessment Year : 2008-09

ITO,                         Vs. Inderjeet Kaur,
Ward-2,                          Prop. M/s Babbar Jewelers,
Sonepat.                         76, Jamaipura,

                                 PAN: ABOPK6571H

    (Appellant)                      (Respondent)

           Appellant by      : Ms Anima Barnwal, Sr. DR
           Respondent by     : Shri K. Sampath, Advocate

     Date of hearing           : 23.10.2015
     Date of pronouncement     : 23.10.2015



     This appeal by the Revenue is directed against the order

passed by the CIT(A) on 18.04.2011 in relation to the assessment

year 2008-09.
                                 2                    ITA No.3381/Del/2011

2.   The first ground is against the deletion of addition of

Rs.40,25,234/- made by the AO on account of `Sundry creditors'.

3.   Briefly stated, the facts of the case are that the assessee is

engaged in the business of purchase and sale of gold jewellery.

Sundry creditors to the tune of Rs.40,20,234/- were shown in the

accounts.   On being called upon to furnish their details, the

assessee submitted the details, which have been reproduced on

pages 5 and 6 of the assessment order. The assessee stated that

these were not the creditors in the strict sense, but, the customers

who sold their old ornaments. In support of the genuineness of

these credits, the assessee submitted that the jewellery purchased

from them was sold to her sole customer, namely, M/s Nikki

Jewellers House, from whom the payment was stuck up. The

assessee submitted that the amount was received from M/s Nikki

Jewellers House and then paid to these customers in the

immediately succeeding year. The AO has recorded that despite

giving adequate opportunity to produce these creditors, the
                                  3                    ITA No.3381/Del/2011

assessee could produce only three persons, namely, Smt. Murti

Devi, Smt. Joginder Kaur and Shri Satpal, whose statements were

recorded on different dates.     The AO noticed that they were

persons of no means and, hence, the assessee's contention of

having purchased gold jewellery from them, was not acceptable.

Resultantly, he made addition of the said sum which came to be

deleted in the first appeal.

4.    We have heard the rival submissions and perused the relevant

material on record. It is an admitted position that the assessee sold

the jewellery purchased from these persons to M/s Nikki Jewellers

House, from whom payment was delayed. On receipt of the

amount from M/s Nikki Jewellers House, the assessee immediately

settled the accounts of these customers.       The ld. CIT(A) has

recorded that all the sundry creditors were produced before the AO

on 7.10.2010, but, they were sent back by the Officer on the

pretext that his health did not permit to take statement of more than

two persons in a single day. Shri Darshan Singh, husband of the
                                   4                     ITA No.3381/Del/2011

assessee stated these facts on affidavit before the ld. first appellate

authority. A copy of such affidavit is available on record which

divulges that all the creditors were taken to the office of the AO in

pursuance of his directions, on 7.10.2010, but the Officer refused

to examine them. The ld. DR has not controverted these findings

recorded in the impugned order with any cogent material. The

three persons who were examined by the AO duly admitted that

they had sold their jewellery to the assessee. The AO has doubted

the genuineness of transactions with them by holding that they

were persons of no means. When we peruse the details of amounts

appearing against these persons, it is found that the same ranged

between Rs.1 lac to Rs.2 lac. The fact that confirmation from all

the creditors were filed along with the affidavit filed by the

assessee's husband averring their production before the AO who

refused to examine and other attending circumstances go to prove

the genuineness of the transactions of purchase of gold jewellery

by the assessee from them. Immediate payment could not be made

to these persons because the receipt from M/s Nikki Jewellers
                                  5                   ITA No.3381/Del/2011

House, the sole buyer of the assessee, was held up. Considering the

entirety of the facts under consideration, we are of the considered

opinion that the ld. CIT(A) was justified in deleting this addition.

This ground is not allowed.

5.   Ground No.2 is against the deletion of addition of

Rs.14,19,200/- (correct amount given in the revised grounds) on

account of unsecured loans. The facts apropos this ground are that

the assessee had shown unsecured loans amounting to Rs.14.19 lac

from friends and relatives. On being called upon to produce these

persons, the assessee submitted that a sum of Rs.11,14,926/-

represented brought forward unsecured loans and only a sum of

Rs.3,04,270/- was on account of transaction undertaken during the

year with Smt. Amarjeet Kaur, who sold jewellery to the assessee

for which confirmation was filed. The AO observed that in the

return of income for the A.Y. 2007-08, there was no balance of

unsecured loans. He, therefore, made addition of Rs.14,19,200/-,

which came to be deleted in the first appeal.
                                 6                   ITA No.3381/Del/2011

6.   Having heard the rival submissions and perused the relevant

material on record, we find that there cannot be any addition under

section 68 in respect of brought forward balances. Section 68

contemplates the addition in respect of amounts received during

the year which are not properly explained by the assessee to the

satisfaction of the AO.   Here is a case in which the assessee

contended before the AO that a sum of Rs.11.14 lac represented

brought forward balances, but, the AO did not find any closing

balances of unsecured loans in the return for the immediately

preceding year. The ld. AR did not readily have the balance sheet

of the preceding year to amplify his contention about such brought

forward balances. In our considered opinion, this fact is of utmost

importance which requires examination at the AO's end.            We,

therefore, set aside the impugned order and send the matter back to

the file of AO for deciding this issue afresh as per law, after

allowing a reasonable opportunity of being heard to the assessee.

In case it is found that unsecured loans amounting to
                                  7                    ITA No.3381/Del/2011

Rs.11,14,926/- were brought forward balances from the last year,

then, no addition should be made for this amount in the current

year. In the otherwise situation, the AO is free to examine the

genuineness of these credits as per law. While examining this

issue of the opening balances, the AO will also examine the

assessee's contention about the sale of jewellery by Smt. Amarjeet

Kaur during the year for a sum of Rs.3.04 lac. This ground is,

therefore, allowed for statistical purposes.

7.   The last effective ground is against the deletion of addition of

Rs.3 lac on account of excessive salary paid to employees and

Rs.63,000/- on account of salary payable for the month of March,

2008. The assessee debited a sum of Rs.7,56,000/- as salary paid

to the persons whose names have been incorporated on page 9 of

the assessment order. In addition to that, the assessee claimed

deduction for a sum of Rs.2,00,000 paid to outside `karigars'. The

assessee also created a provision of Rs.63,000/- towards salary

payable at the end of the year. The AO required the assessee to
                                 8                   ITA No.3381/Del/2011

produce the persons to whom such salary of Rs.7,56,000/- was paid

and also the persons to whom a sum of Rs.2 lac was paid. In the

absence of the production of such employees/karigars, the AO

made an ad hoc disallowance of Rs.3 lac on account of excessive

salary paid to its employees and outside `karigars'. He further

made disallowance of Rs.63,000/- representing provision for salary

payable for the month of March, 2008. The ld. CIT(A) deleted the

additions. The Revenue is aggrieved against the deletion of this


8.   After considering the rival submissions and perusing the

relevant material on record, we observe that the assessee paid a

salary of Rs.7.56 lac to its employees and Rs.2 lac to outside

`karigars.' The assessee furnished person-wise details to whom

salary payments were made and also payment to `karigars.' The

assessee expressed inability to produce these persons because the

business itself was closed down on 27.7.2009 and, thereafter, it

was difficult to locate them. In our considered opinion, the amount

of salary paid to the assessee's employees and charges to outside
                                9                      ITA No.3381/Del/2011

`karigars' is reasonable in the facts and circumstances of the

instant case as the further corroboration by producing them for

personal examination was not possible due to the closure of

business. As such, the ad hoc disallowance of Rs.3 lac made by the

AO is held to be rightly deleted. As regards the remaining amount

of Rs.63,000/-, we find that this was a provision created by the

assessee towards salary for March, 2008 which was paid in April,

2008, which does not require disallowance. We, therefore, uphold

the impugned order on this count. This ground fails.

9.    In the result, the appeal is partly allowed for statistical
purposes. stand dismissed.

      Decision pronounced in the open Court on 23rd Oct., 2015.

                Sd/-                             Sd/-

     (SUCHITRA KAMBLE)                     (R.S. SYAL)

Dated, 23rd October, 2015.

                           10                ITA No.3381/Del/2011

Copy forwarded to: -

1.   Appellant :
2.   Respondent :
3.   CIT
4.   CIT(A)
5.   DR, ITAT

                       Assistant Registrar
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