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Katt Special Machines (P) Dy. CIT Ltd. M-96B/7, Shastri Nagar Vs. Circle 5 (1)New Delhi-110052 New Delhi-110002
September, 26th 2012
              IN THE INCOME TAX APPELLATE TRIBUNAL
                    DELHI BENCH: `D' NEW DELHI

     BEFORE SHRI G.D. AGRAWAL, HON'BLE VICE-PRESIDENT AND
               SHRI I.C.SUDHIR, JUDICIAL MEMBER

                          I.T.A. NO. 1290/Del/2011

                         Assessment Year: 2003-04

Katt Special Machines (P)                            Dy. CIT
Ltd. M-96B/7, Shastri Nagar    Vs.                   Circle 5 (1)
New Delhi-110052                                     New Delhi-110002
PAN: AABCK9818L

(ASSESSEE)                                           (REVENUE)

                          I.T.A. NO. 1401/Del/2011

                          Assessment Year: 2003-04

ACIT, Circle (1),              Vs.                   Katt Special Machines(P)
New Delhi.                                           Ltd. M-96B/7, Shastri
                                                     NagarNew Delhi-
                                                     110052
(REVENUE)                                            (ASSESSEE)


            Assessee by: Shri B.K. Anand, CA
            Revenue by: Shri R.S. Negi, Sr. DR
            Hearing on: 3/07/2012
            Order Pronounced on the Date: ...........



                                  ORDER

PER I.C.SUDHIR, JM:

      These are the cross appeals preferred by the parties against the first

appellate order. The assessee has questioned first appellate order on the

following grounds:
                                 2          ITA NO. 1290 & 1401/Del/2011


1.   "That on the facts and in the circumstances of the case the learned

     Commissioner of Income Tax (Appeals) erred in confirming the

     disallowance of Rs.17,90,558 being commission paid by the

     assessee company to its selling agents with complete disregard to

     the details filed before him supporting the expenditure by the

     assessee.

2.   That the learned Commissioner of Income Tax (Appeals) erred in

     not holding that the letter filed before the AO related only to

     specific queries raised by the latter during remand proceedings in

     which he had not asked for any further evidence relating to the said

     commission payment.

3.   That the learned Commissioner of Income Tax (Appeals) erred in

     not considering the confirmations of specific agents filed before

     him in terms of sub-rule (4) of Rule 46A directing the assessee to

     file such confirmations which the assessee duly complied with.

4.   That the learned Commissioner of Income Tax (Appeals) erred in

     not holding that the assessee having furnished requisite details in

     respect of Rs.98,421 being amounts written-off under "Short &

     Excess Recoveries", which are inherent in trading operations, the
                                         3            ITA NO. 1290 & 1401/Del/2011


             write-off called for no disallowance and further erred in not

             deleting the disallowance made by the AO.

     5.      That the learned Commissioner of Income Tax (Appeals) erred in

             partially confirming the ad-hoc addition out of expenses made by

             the AO with complete disregard to the details and documents

             furnished before the AO during the assessment proceedings."

6.        The revenue on the other hand has questioned first appellate order on

the following grounds:

             1.    The order of the learned CIT (APPEALS) is erroneous &

                   contrary to facts & law.

             2.    On the facts and in the circumstances of the case and in law,

                   the learned CIT (A) ignored the finding recorded by the AO

                   and the fact that the assessee did not discharge the onus of

                   proving the existence/creditworthiness of the creditors and

                   genuineness of the transactions.

             3.    On the facts and in the circumstances of the case and in law,

                   the learned CIT (A) has erred in deleting the addition of

                   Rs.57,000/- made account of unexplained cash credits.

             3.1   The ld. CIT (A) ignored the finding recorded by the AO and

                   the fact that the assessee did not file the requisite evidence
                              4          ITA NO. 1290 & 1401/Del/2011


      during the course of assessment proeceeding despite having

      been provided with ample opportunities.

4.    On the facts and in the circumstances of the case and in law,

      the learned CIT (A) has erred in deleting the addition of

      Rs.3,00,097/-made      on    account     of   disallowance       of

      depreciation on old sewing machines.

4.1   The ld. CIT (A) ignored the finding recorded by the AO and

      the fact that the assessee did not file the requisite evidence

      during the course of assessment proceeding to substantiate its

      claim.

5.    On the facts and in the circumstances of the case and in th

      law, the learned CIT (A) has erred in deleting the addition of

      Rs.89,703/- made on account of disallowance of non moving

      credits.

5.1   The ld. CIT (A) ignored the finding recorded by the AO and

      the fact that the assessee did not file the requisite evidence

      during the course of assessment proceeding to substantiate its

      claim.

6.    On the facts and in the circumstances of the case and in law,

      the learned CIT (A) has erred in restricting the addition on
                                       5           ITA NO. 1290 & 1401/Del/2011


               account of disallowance to Rs.8,87,557/- as against

               Rs.73,26,507/-made by the AO.

         6.1 The ld. CIT (A) ignored the finding recorded by the AO and

               the fact that the assessee did not file the requisite evidence

               during the course of assessment proceeding to substantiate its

               claim."

3.    Since some grounds raised in the appeals are having common facts,

these are being dealt with simultaneously.

Ground No. 1 (Assessee)

4.    The authorities below have made and upheld the disallowance of

Rs.17,90,558/- on account of commission on sales. The relevant facts are

that the assessee company claimed to have made payment of Rs.17,90,558/-

on account of commission on sales. The AO noted that in the immediately

preceding year i.e. assessment year 2005-06 no commission payment was

claimed by the assessee. He therefore, asked the assessee to furnish full and

complete details of the persons to whom commission has been paid along

with the detailed ledger account of all the parties for the relevant assessment

year. On perusal of the commission account the AO also found that in

certain cases commission was also paid in cash. Under these circumstances

the AO afforded opportunities to the assessee to furnish confirmations of the
                                        6       ITA NO. 1290 & 1401/Del/2011


concerned parties so as to ensure his payment has actually been made and

that the concerned parties have disclosed the commission receipts in their

returns of income. The assessee however, failed to avail such opportunities.

The AO thus made disallowance of the claimed commission payment of

Rs.17,90,558/- on the sales. Since the assessee could not improve its case

before the Ld. CIT (A), the Ld. CIT (A) has upheld the addition in question.

5.     Before the Tribunal in support of the ground the Ld. AR has

submitted that before the Ld. CIT (A) it was made clear that a detailed

ledger account of commission payment was filed before the AO, wherein the

names and details of the respective sales bills in respect of which the

commission was paid were duly given. In compliance of the direction of the

AO vide order sheet entry dated 8.12.2008, confirmation of M/s Lucky

Enterprises, M/s Shiva Enterprises, M/s Sanjeev International, M/s Rajesh

Associates, Shri Anuj Jain and Shri Jain Enterprises were sent to him along

with letter dated 22.12.2008. The AO however, did not consider those

documents. The Ld. DR on the other hand placed reliance on the orders of

the authorities below in this regard.

6.    Having gone through the orders of the authorities below we find that

the assessee could not be able to improve its case before the Tribunal.

Undisputedly onus lies on the claimant to establish its claim. The AO was
                                      7           ITA NO. 1290 & 1401/Del/2011


having every right to verify the claimed payment of commission and he was

justified in asking the assessee to furnish confirmations of concerned parties

so as to ensure that (i) the payment has actually been made and (ii) that the

concern parties have disclosed the commission receipts in their returns of

income. Despite all opportunities the assessee could not comply this

direction of the AO. Before the Ld. CIT (A) the assessee contended that

incompliance of the direction of the AO vide order sheet entry dated

8.12.2008 the assessee had furnished confirmations of M/s Lucky

Enterprises, M/s Shiva Enterprises, M/s Sanjeev International, M/s Rajesh

Associates, Shri Anuj Jain and M/s Jain Enterprises along with letter dated

22.12.2008 and the AO did not consider those confirmations while

adjudicating the issue on payment of commission. In the interest of justice

the Ld. CIT (A) remanded the matter to the file of the AO to examine the

above contention of the assessee. The AO reported that the claim of the

assessee that the confirmation of M/s Lucky Enterprises etc. were filed along

with letter dated 22.12.2008 was factually incorrect as no such letter was

filed in the course of assessment proceedings. He also submitted that if at all

confirmations of the persons to whom commission was paid were available

with assessee, same could have been filed in the course of remand

proceedings. The AO noted further that in spite of number of opportunities
                                       8           ITA NO. 1290 & 1401/Del/2011





granted in the course of hearing no compliance was made by the assessee

company. Under these facts we are of the view that the Ld. CIT (A) was

having no option but to affirm the disallowance of the claimed commission

payment of Rs.17,90,558/-. Since the assessee could not improve its case

even before the Tribunal, we are not inclined to interfere with the finding of

Ld. CIT (A) in this regard. The same is upheld. The ground No. 1 is

accordingly rejected.

Ground No. 2 (Assessee)

7.    The AO made an addition of Rs.98421/- representing short and excess

recovery. The AO has made this addition in absence of details in respect of

short and excess recoveries for the assessment year under consideration. In

absence of improvement of the case of the assessee before the Ld. CIT (A),

the Ld. CIT (A) has upheld the addition.

8.    The contention of the Ld. AR before the Tribunal remained that the

amount in question represented short recovery from the regular customers

from whom small balances remained outstanding and over a period of time

the same are written off in the books of accounts of the assessee. The Ld.

AR submitted that such rights are of normal business incidence. The Ld. DR

on the other hand tried to justify the orders of the authorities below.
                                      9          ITA NO. 1290 & 1401/Del/2011


9.    Having gone through the orders of the authorities below, we find that

the Ld. CIT (A) has upheld the addition with this finding that there is no

rebuttal of the finding of the AO that no details/information was furnished

before him in respect of the alleged short and excess recoveries and

consequent writing off the said amount. Even before the Tribunal the

assessee has failed to rebut the said findings recorded by the AO that no

details/information was furnished before him in respect of the claimed

writing off. The assessee has not improved its case even before the Tribunal

on the issue. We thus do not find reason to interfere with the first appellate

order in this regard. The same is affirmed. Ground No. 2 is accordingly

rejected.

Ground No. 3 (Assessee) & Ground No. 6 (Department)

10.   The relevant facts are that the AO made addition of Rs.73,26,507/- out

of the expenses claimed as per the profit and loss account of the assessee

company. The AO made the said addition on the basis that in spite of

numbers of opportunities allowed, no books of accounts were produced by

the assessee before him. The AO noted further that as per Para 14 of the

notes to accounts in schedule 15, it was stated that some of the expenses

were not properly supported. The AO therefore, in view of the disallowance

made in the immediate preceding assessment year disallowed 10% of the
                                     10          ITA NO. 1290 & 1401/Del/2011


entire expenses (excluding depreciation, preliminary expenses, filing fees,

short an excess recoveries and commission expenses) claimed in the profit

and loss account of the assessee.

11.   Before the first appellate authority the assessee contended that the AO

did not exercise his quashi judicial powers while making the addition in

question. It was submitted that the assessment in the present case was

handled more than one Assessing Officers and the books of accounts were

produced with the predecessor officer and the same were examined on test

check basis. Therefore, it is factually incorrect to say that books of account

were not produced before the AO. It was submitted that the account of the

assessee are duly audited u/s 44 AB of the Act and the audit report was filed

along with the return of income. It was contended that the amount of

Rs.7,32,65,067/-, 10% of which has been considered for disallowance, also

included costs of goods sold by the assessee. It was submitted further that

the assessee is dealing in items which are identifiable, quantifiable and were

duly confirming part of the trading account. The assessee thus objected the

disallowance of 10% of the cost of goods sold amounting to

Rs.6,43,89,507/-. Regarding other expenses, the assessee submitted that

details called for by the AO were submitted before him from time to time

and only specific requirements noted on 8.12.2008 could not be fulfilled
                                     11          ITA NO. 1290 & 1401/Del/2011


because of paucity of time. It was submitted that on 8.12.2008 no issue with

regard to the purchase of Sewing machines spare parts and accessories was

raised. Regarding unsecured loans, non-moving activities, addition on

account of be share capital, payment of commission, interest payment on

taxes etc. separate additions were made by the AO and therefore, according

to the assessee an ad hoc disallowance @ 10% over and above specific

disallowance was not justifiable. Considering these submissions the Ld. CIT

(A) has restricted the addition to Rs.8,87,557/- out of the addition of

Rs.73,26,507/- made by the AO. In result both the parties are in appeal

before the Tribunal.

12.   In support of ground no. 3 of the appeal preferred by the assessee, the

Ld. AR has reiterated the submissions made before the authorities below.

The Ld. DR on the other hand placed reliance on the assessment order. He

submitted further that the Ld. CIT (A) was not justified in deleting the

addition to the extent of Rs.64,38,950/- being 10% of cost of sales of

Rs.6,43,89,507/-.

13.   In view of the above submissions we have gone through the orders of

the authorities below. We find that the AO had made an addition of

Rs.73,26,507/- out of the expenses claimed in the profit and loss account of

the assessee on the basis that in spite of number of opportunities allowed, no
                                      12          ITA NO. 1290 & 1401/Del/2011


books of accounts were furnished by the assessee before him. The AO noted

further that some of the expenses admittedly (as per Para 14 of the notes to

grounds in scheduled 15) were not properly supported with evidence. The

Ld. CIT (A) has however, examined the claim of the assessee from the

details of purchases of sewing machine, spare parts, needles and

miscellaneous items made available in the assessment records. He has noted

that as per the details of opening stock, purchases, sales and closing stock of

the aforesaid items, the assessee had 148 sewing machines as opening stock

as on 1.4.2005 and the assessee thereafter made purchases of 5,178

machines, out of which 2845 machines were sold leaving a closing stock of

2400 and 81 as on 31.3.2006. Similar information was available in respect of

spare parts needles miscellaneous items as well. The Ld. CIT (A)

accordingly agreed with the assessee that the disallowance out of cost of

goods sold could not have been considered on ad hoc basis without pointing

out any discrepancies in the details filed before the AO. The Ld. CIT (A) has

observed further that the items traded in by the assessee are such that the

same are quantifiable in pieces and there cannot be any justification for any

ad hoc disallowance. Under these unrebutted facts noted by the Ld. CIT(A),

we do not find infirmity in the first appellate order coming to the conclusion

that addition to the extent of Rs.64,38,950/- being 10% of cost of sales of
                                      13          ITA NO. 1290 & 1401/Del/2011


Rs.6,43,89,507/- was justified. In our view the Ld. CIT (A) under the above

circumstances has rightly deleted the addition to the extent of Rs.64,38,950/-

. In result ground no. 6 and 6.1 of the appeal preferred by the revenue are

rejected.

14.   The Ld. CIT (A) has upheld the balance disallowance of Rs.8,87,557/-

out of the claimed expenses under the head salaries and wages, directors;

remuneration, administrative expenses, interest and financial charges and

selling, business promotion etc. The Ld. CIT (A) has sustained this

disallowance on the basis that before the AO, the assessee failed to furnish

necessary bills and vouchers in support. The Ld. CIT (A) has further noted

that even during the course of remand proceedings there was no compliance

to the directions of the AO to produce the necessary evidence justifying the

claim of expenditure under the aforesaid heads. Since the assessee could not

improve its case before the Tribunal we do not find reason to interfere with

the finding of the Ld. CIT (A) in this regard. The same is affirmed. The

ground no. 3 of the appeal preferred by the assessee is thus rejected.

The ground no. 1 (Department) is general in nature hence does not need

independent adjudication.

Ground Nos. 2 & 2.1 (Department)
                                     14          ITA NO. 1290 & 1401/Del/2011


The AO made addition of Rs.97,20,420/- on account of fresh share capital

brought into books of account during the year. The facts in brief are that the

assessee company engaged in the business of trading, hiring and repairing of

industrial sewing machines, spare parts and accessories had made an

arrangement with M/s V.S. Mechanical Works and M/s V.S. Sales

Corporation, proprietorship concerns of Sh. Tarkeshwar Yadav and Smt.

Phoolwati Yadav, respectively whereby all the assets and liabilities of the

proprietorship concerned were taken by the assessee company at the book

value. Sh. Tarkeshwar Yadav, and his wife Smt. Phoolwati Yadav are also

the directors of the assessee company. As per the said agreement between

Assessee Company and the proprietors of the aforesaid concern the

liabilities including the outstanding loans and credit balances were to be

settled by way of allotment of shares of the assessee company to the concern

persons according to their outstanding balances as on 1.4.2005. As per this

arrangement only fresh share capital of Rs.97,20,420/- was introduced

during the year under consideration in lieu of outstanding liabilities which

inter alia included creditors of Rs.57,09,240/- deposits of Rs.8,43,500/-,

value of proprietor's net assets Rs.18,49,430/- and credit balances

outstanding in its books at Rs.13,18,250/-. While examining the assets and

liabilities shown by the assessee company for the year under consideration,
                                      15          ITA NO. 1290 & 1401/Del/2011


the AO asked the assessee to file necessary details of the persons who had

contributed to the fresh capital to Rs.97,20,420/-. In response the assessee

filed a detailed list of all the 31st share holders which also included both the

directors, their HUF and childrens. The AO noted that the address shown in

the cases of almost all the shareholders were of the assessee company itself.

The AO thus doubted the existence and identity of the shareholders and he

decided to conduct further enquiry in this regard in order to ascertain the

correct factual position. On spot enquiries, the inspector found that none of

the shareholders were available at the given address. The AO issued

summons u/s 131 of the Act to 21 shareholders excluding the directors and

their family members. No response/compliance was made thereto. It was

brought to the notice of the assessee during the course of assessment

proceeding and the assessee was required to produce all the 21 persons for

examination. The assessee failed to comply with the same. The assessee

subsequently filed affidavits in cases of 10 persons. On examination of those

affidavits the AO found that in all the cases the source of income was shown

as agricultural income ranging between Rs.70,000/- to 95,000/- their

creditworthiness was thus doubted by the AO. The assessee was asked to

explain as to why the increase in the share capital could not be treated as

unexplained u/s 68 of the Act. The assessee was also asked to furnish
                                      16          ITA NO. 1290 & 1401/Del/2011


necessary details regarding mode of payment of share capital, cheque nos.

and bank statements of the share applicants. The assessee did not comply

with the same. The AO accordingly made addition of Rs.97,20,420/- after

regarding his findings in detail at page nos. 5 to 9 of the assessment order.

15.   The assessee questioned the above additions made by the AO before

the Ld. CIT (A) mainly on the basis that the AO has failed to appreciate the

fact that the increase in the share capital did not involve any monetary

transactions in terms of receipt on payment of actual money. It was

contended that the increase in share capital was a consequence of takeover

of assets and liabilities of M/s V.S. Mechanical Works and M/s V.S. Sales

Corporation i.e. proprietorship concerns of both the directors of the assessee

company. The assessee also raised other contentions. Considering these

contentions, the Ld. CIT (A) has deleted the addition of Rs.97,20,420/- on

the basis that the amount has been received by the assessee company as a

result of takeover of assets and liabilities of M/s V.S. Sales Corporation and

M/s V.S. Mechanical Works and represented outstanding balances in their

cases as on 1.4.2005. The Ld. CIT (A) noted that neither the money in

question was directly received by the assessee nor the same was received in

the year under consideration. The revenue has questioned this action of the

Ld. CIT (A).
                                      17          ITA NO. 1290 & 1401/Del/2011


16.   The Ld. DR has basically placed reliance on the assessment order with

the submissions that neither identity of the shareholders nor the genuineness

of transactions have been established by the assessee. He pointed out that the

addresses given by the shareholders were shown at the address of assessee

itself. The Ld. AR on the contrary tried to justify the first appellate order on

the issue.

17.   Having gone through the orders of the authorities below as discussed

above, we find that the Ld. CIT (A) has deleted the addition in question

mainly on the basis that increase in the amount in question was received by

the assessee company as a result of take over of assets and liabilities of M/s

V.S. Sales Corporation and M/s V.S. Mechanical Works, the proprietorship

concerns of the directors and that the amount represented outstanding

balances in their cases as on 1.4.2005. Thus neither the money in question

was directly received by the assessee company nor the same was received in

the year under consideration. The increase in share capital was a result of

book entries passed consequent to the take over of assets and liabilities of

the aforesaid two concerns. The AO did not find anything wrong with the

take over of the assets and liabilities of the said concerns. The AO had made

addition u/s 68 of the Act on the basis that the assessee had failed to

establish identity and creditworthiness of the share applicants and the
                                      18          ITA NO. 1290 & 1401/Del/2011


genuineness of the transaction to which the Ld. CIT (A) agreed upon with

this finding in Para no. 4.7 of the first appellate order that the amount of

Rs.97,20,420/-    is not entirely explainable. The Ld. CIT (A) in this

Paragraph has held that the action is certainly called for to bring the same to

tax as per the provisions of law in the hands of proprietors of M/s V.S.

Mechanical Works and M/s V.S. Sales Corporation. It has been noted that in

the books of the above stated two proprietor concerns, there were creditors

of Rs.57,09,240/- (Rs.31,75,600 + Rs.25,33,640) and credit balance/deposits

of Rs.8,43,500/-(Rs.800000 + Rs.43,500) in addition to proprietors' net sale

consideration (Assets ­ Liabilities) of Rs.18,49,430/- (Rs.1350630 +

Rs.498800) which were taken over by the assessee company and there was

credit balance of Rs.1318250/- in the books of the assessee company in the

name of 5 parties in lieu of all these credit balances as on 1.4.2005

(Rs.57,09,240 + Rs.8,43,500 + Rs.18,49,430 + Rs.13,18,250) shares of

Rs.97,20,420/- were allotted. The AO made addition of all these amounts of

Rs.97,20,420/- u/s 68 of the Act treating it as bogus share capital in respect

of all the 31 parties as assessee failed to prove identity and capacity of all

these persons and genuineness of these transactions. The basis on which the

Ld. CIT (A) has deleted the addition that the amount of Rs.97,20,420/- in the

hands of the assessee company has been received by the assessee company
                                      19          ITA NO. 1290 & 1401/Del/2011


as a result take over of assets and liabilities of M/s V.S. Sales Corporation

and M/s V.S. Mechanical Works and represented outstanding balances in

their cases as on 1.4.2005, has not been rebutted by the revenue. The

revenue has also not rebutted the relevant findings of the Ld. CIT (A) that

neither the money in question was directly received by the assessee company

nor the same was received in the year under consideration, we thus do not

find infirmity in the first appellate order in this regard. Undisputedly, the

increase in share capital was as a result of book entities passed consequent to

the take over of assets and liabilities of the aforesaid two concerns. The

action of the first appellate authority in deleting the addition of

Rs.97,20,420/- in the hands of the assessee does not require interference.

The same is upheld. The ground no. 1 of the appeal preferred by the

department is thus rejected.

Ground No. 3 (Department)

18.   The AO made addition of Rs.57,000/- on account of unexplained cash

credit. The AO had asked for necessary confirmations etc. in respect of two

cash credits appearing in the names of Sh. Vijay Kumar, (Rs.50,000/-) and

Sh. Santosh Mishra (Rs.7,000/-). The AO had made addition on the basis

that the assessee failed to make proper compliance. The Ld. CIT (A) has

deleted the addition on the basis that before the AO the assessee had filed
                                        20           ITA NO. 1290 & 1401/Del/2011


confirmations of both the creditors and the transactions were made by means

of banking channels, hence the AO without verifying those documents was

not justified in making the addition.

19.   In support of the ground the Ld. DR has placed reliance on the

assessment order. He submitted that the assessee failed to file statements and

income tax returns of the said two creditors before the AO, hence the

assessee failed to establish the genuineness of the transaction. The Ld. AR

on the contrary tried to justify the first appellate order.

20.   Considering the above submissions we find that by filing

confirmations of the above said two creditors with this submission that the

transactions were made through the banking channel, we are of the view that

the assessee had discharged primary onus to establish the claimed credits.

Thus in absence of finding of the AO that information furnished in those

confirmations were false or unverifiable, we are of the view that the AO was

not justified in making the addition of the amount in question u/s 68 of the

Act and the same has been rightly deleted by the Ld. CIT (A). The action of

the first appellate authority in this regard is thus upheld. The ground no. 3

and 3.1 are accordingly rejected.

Ground Nos. 4 & 4.1
                                       21          ITA NO. 1290 & 1401/Del/2011


21.   The AO made disallowance of Rs.3,97,000/- being depreciation on

old sewing machines. The AO has made disallowance on the basis that the

sewing machines and other accessories constitute the stock- in- trade of the

assessee company and the business activities carried on by it do not require

any use of such machines. The Ld. CIT (A) has deleted disallowance

accepting the contention of the assessee that apart from trading in industrial

sewing machines, the assessee was also engaged in repairs, job work and

hiring of sewing machines.

22.   In support of ground the Ld. DR has placed reliance on the assessment

order. The Ld. AR had tried to justify the first appellate order in this regard.

23.   We find that during the year the assessee had disccussed rental

income of Rs.24,42,186/-. Thus the Ld. CIT (A) has accepted the contention

of the assessee that apart from trading in industrial sewing machines, the

assessee was also engaged in repairs job work and hiring of sewing

machines. As disclosed above the AO had disallowed Rs.3,00,097/- being

depreciation on old sewing machines on the basis that the sewing machines,

other accessories constitute the stock- in- trade of the assessee company and

the business activities carried on do not require any use of such machines.

These observations of the AO was contrary to the facts in the case. We thus

do not find infirmity in the first appellate order, whereby the Ld. CIT (A)
                                     22         ITA NO. 1290 & 1401/Del/2011


has deleted the disallowance. The same is upheld. The ground nos. 4 and 4.1

are thus rejected.

Ground No. 5 (Department)

24.   The AO made additions of Rs.40,069/- and Rs.49,634/- on account of

non-moving creditors. The AO called for details of non-moving creditors

and on examination thereof found that in the case of Rashi Wear Pvt. Ltd.

and M/s Singer India Ltd. there were credit balances of Rs.40,069/- and

Rs.49,634/- respectively. Since the assessee failed to furnish any

confirmations the AO made the addition. The Ld. CIT (A) has however,

deleted the same being convinced with the submission of the assessee.

25.   In support of ground the Ld. DR has placed reliance on the assessment

order. The Ld. CIT (A) has tried to justify the first appellate order in this

regard.

26.   Considering the above submissions we find that before the Ld. CIT

(A) the assessee contended that the AO has made addition without

appreciating the real nature of transactions with the concern parties in

correct prospective. It was submitted that in the case of M/s Singer India

Ltd. the amount of Rs.49,634/- is infact a debit balance receivable by the

assessee company. Similarly, in the case of M/s Rashi Wear Pvt. Ltd.. the

amount of Rs.40,069/-is the amount which has been brought into the books
                                     23           ITA NO. 1290 & 1401/Del/2011


of accounts of the assessee on account of merger of M/s V.S. Mechanical

Works. It was submitted further that in case of M/s Rashi Wear Pvt. Ltd. the

amount was still outstanding as on 31 March, 2006 and there was no

cessation or remission of the liability and therefore the same could not have

been treated as income of the assessee company. Under these circumstances,

the Ld. CIT (A) in our view has rightly deleted the additions. The same is

upheld. Ground nos. 5 and 5.1 are rejected.

Ground Nos. 6 & 6.1 (Department)

27.   Issue raised in this ground has already been adjudicated upon herein

above while dealing with ground no. 3 of the appeal preferred by the

assessee. Following the decision taken therein these grounds are rejected.

28.   In result both the appeals are dismissed.

29.   The orders are pronounced in the open Court on the day 21/09/2012.

                   Sd/-                              Sd/-
             G.D.AGRAWAL )                      (I.C.SUDHIR)
             VICE-PRESIDENT                   JUDICIAL MEMBER

Dated: 21/09/2012
*AK VERMA*
Copy forwarded to:
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(Appeals)
5.     DR: ITAT


                                                    ASSISTANT REGISTRAR
24   ITA NO. 1290 & 1401/Del/2011
 
 
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