The ACIT, Baroda Circle-4,, Baroda v. Narayan Powertech Pvt. Ltd.,, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI N.S.SAINI ACCOUNTANT MEMBER DATE OF HEARING: 3.05.2010 DRAFTED ON: 3.05.20 10 ITA NO.1543/AHD/2005 ASSESSMENT YEAR : 2001-2002 ASSTT. COMMISSIONER OF INCOME TAX BARODA CIR.4 BARODA. 4 TH FLOOR AAYKAR BHAVAN RACE COURSE CIRCLE BARODA-390 007 VS. NARAYAN POWERTECH PVT. LTD. 102 YOGIDARSHAN BUILDING 13-A NUTAN BHARAT SOCIETY ALKAPURI BARODA. PAN/GIR NO. : AAACN6792R (APPELLANT) .. (RESPONDENT) ITA NO.1430/AHD/2005 & 686/AHD/2007 ASSESSMENT YEAR : 2001-2002 NARAYAN POWERTECH PVT. LTD. 102 YOGIDARSHAN BUILDING 13-A NUTAN BHARAT SOCIETY ALKAPURI BARODA. VS. ASSTT. COMMISSIONER OF INCOME TAX BARODA CIR.4 BARODA. 4 TH FLOOR AAYKAR BHAVAN RACE COURSE CIRCLE BARODA-390 007 PAN/GIR NO. : AAACN6792R (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K. MISHRA D.R. RESPONDENT BY: SHRI J. P. SHAH A.R. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- IN ITA NOS.1543/AHD/2005 AND 1430/AHD/2005 ARE TH E CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST T HE ORDER OF THE LEARNED - 2 - COMMISSIONER OF INCOME TAX(APPEALS)-II BARODA DAT ED 3.03.2005 AND THE APPEAL IN ITA NO.686/AHD/2007 IS FILED BY THE ASSES SEE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III BA RODA DATED 21.11.2006. ITA NO.1543/AHD/2005 APPEAL OF THE REVENUE . 2. GROUND NO.I RELATES TO DELETION OF ADDITION OF RS.8 86 110/- ON ACCOUNT OF DISALLOWANCE OF LABOUR CHARGES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAS CLAIMED TO HAVE PAID RS.17 36 712/- TO M/S.PATEL ELECTRICALS AND RS.12 0 3 699/- TO M/S.MADHAV LABOUR SUPPLIERS AND CLAIMED THE SAME AS DEDUCTION UNDER THE HEAD LABOUR CHARGES. FROM THE COPY OF ACCOUNT OF M/S.MADHAV LA BOUR SUPPLIERS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE PERIOD 1.04.2000 TO 31.01.2001 THE LEARNED ASSESSING OFFICER NOTED THAT IF OPENING BALANCE OF RS.19 974/- IS EXCLUDED THEN THERE IS TOTAL CREDIT OF RS.10 69 191/- IN THE ACCOUNT. THUS THE COMPANY HA S CLAIMED EXCESS AMOUNT OF RS.1 34 508/- (RS.12 03 699/- - RS.10 69 101/- IN ITS RETURN OF INCOME. THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION FOR THE SAME. HENCE THE SAME IS DISALLOWED. 4. FROM THE COPY OF ACCOUNT OF M/S.MADHAV LABOUR S UPPLIERS THE LEARNED ASSESSING OFFICER NOTED THAT FURTHER IT SHO WS CASH PAYMENTS MADE ON VARIOUS DATES FROM 12.05.2002 TO 8.03.2001 TOTAL ING TO RS.7 51 602/- . LETTER DATED 16.09.2003 WAS ISSUED UNDER SECTION 13 3(6) AND WAS SERVED UPON M/S.MADHAV LABOUR SUPPLIERS ON 30.09.2003 BUT TILL THE DATE OF ORDER NOT COMPLIANCE WAS MADE DIRECTLY BY THE SAID PARTY. HOWEVER ASSESSEE FURNISHED LETTER FROM THE SAID M/S.MADHAV LABOUR SU PPLIER ADDRESSED TO THE - 3 - LEARNED ASSESSING OFFICER ALONGWITH ITS SUBMISSION DATED 26.12.2003. ON GOING THROUGH THE COPY OF ACCOUNT ALONG WITH THE SA ME LEARNED ASSESSING OFFICER OBSERVED THAT M/S.MADHAV LABOUR SUPPLIER HA S SHOWN ONLY PAYMENT RECEIVED BY CHEQUE. BILLS WERE RAISED BY THEM ONLY FOR THE SAME AMOUNT. NO CASH WAS SHOWN BY THEM AS RECEIVED NOR ANY BILLS WE RE SHOWN AS OUTSTANDING. THE ASSESSEE EXPLAINED THAT CASH PAYME NTS REFLECTED IN THE M/S.MADHAV SUPPLIERS COPY OF ACCOUNT WAS ACTUALLY PAYMENT MADE TO NUMBER OF LABORERS DIRECTLY. THE AMOUNTS OF SUCH PA YMENTS WERE TREATED AS LABOUR CHARGES EXPENDITURE. THE BILLS RAISED BY M/S .MADHAV LABOUR SUPPLIERS HAVE BEEN DEBITED SEPARATELY AND PAID SEP ARATELY BY CHEQUE ONLY. THE LEARNED ASSESSING OFFICER OBSERVED THAT ALTHOUG H ASSESSEE HAS IN ITS BOOK DEBITED THE AFORESAID CASH PAYMENTS IN THE ACC OUNT OF M/S.MADHAV LABOUR SUPPLIERS BUT AS PER ASSESSEES ACCOUNT IN THE BOOKS OF M/S.MADHAV LABOUR SUPPLIERS IT HAD RECEIVED ONLY THE PAYMENT W HICH WERE MADE THROUGH CHEQUES ONLY. CASH PAYMENT OF RS.7 51 602/- CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE WERE NOT APPEARING IN THE BOOK S OF M/S.MADHAV LABOUR SUPPLIERS NOR THEY HAD RAISED ANY CORRESPOND ENCE. THE ASSESSEE HAS CLAIMED THAT THOSE CASH PAYMENTS MADE TO SHRI SALIM BHAI AN EMPLOYEE OF MADHAV LABOUR SUPPLIERS FOR PAYMENT TO TEMPORARY WO RKERS DIRECTLY. SHRI CHIRAG S. SHAH MANAGING DIRECTOR OF THE COMPANY IN HIS STATEMENT ON 7.01.2004 UNDER SECTION 131 OF THE ACT STATED THAT THE ABOVE CASH PAYMENTS WERE MADE DIRECTLY TO THE INDIVIDUAL CASUAL WORKERS UNDER THE SUPERVISION OF SHRI SALIMBHAI WHO IS WORKING FOR M/S.MADHAV LABOUR SUPPLIERS BECAUSE OF THIS CONNECTION THE ENTRIES FOR PAYMENT TO DAILY CA SUAL WORKERS WERE WRONGLY PASSED TO THE ACCOUNT OF M/S.MADHAV LABOUR SUPPLIER S. HE STATED THAT HE WILL PRODUCE SHRI SALIMBHAI WITHIN A WEEK BUT TILL THE DATE OF ORDER NO SUCH PERSON WAS PRODUCED NOR ANY CONFIRMATION WAS FURNIS HED. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT NO COMPLETE ADDRESS OF SHRI SALIMBHAI WAS GIVEN AND NOT TDS WAS DEDUCTED FROM T HE CASH PAYMENTS. - 4 - THEREFORE THE ASSESSEE FAILED TO ESTABLISH WITH CO RROBORATIVE EVIDENCE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY HE MADE DISALLOWANCE OF RS.8 86 110/- (RS.1 34 508 + RS.7 51 502/-). 5. IN APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER:- 4.8. I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE AND REPORT DATED 18.02.2005 ARE CONSIDERED. THE DECISIONS RELIED UPON BY THE APPELLANT ARE PERUSED. THE CONTENTION OF THE APPELLANT IS FOUND TO BE CONVINCING THAT THE LA BOUR CHARGES HAVE DECREASED TO 6.92% AS COMPARED TO 9.56% OF LAST YEA R WHICH CANNOT BE SAID TO BE EITHER EXCESSIVE OR UNREASONABLE. FUR THER THE DISALLOWANCE OF LABOUR CHARGES PAID IN CASH WHICH ARE SUPPORTED BY VOUCHERS. IT HAS BEEN STATED THAT SAME ARE PAID TO SMALL LABORERS DIRECTLY AND THEREFORE NOT REFLECTED IN THE LEDGER ACCOUNT OF MADHAV LABOUR SUPPLIERS. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND MORE PARTICULARLY WHEN BOO KS OF ACCOUNTS ARE AUDITED AND NET PROFIT SHOWN BY THE APPELLANT IS FO UND TO HAVE INCREASED I AM OF THE VIEW THAT THERE IS NO JUSTIF ICATION TO MAKE SUCH DISALLOWANCE. THE AO IS DIRECTED TO ALLOW RELIEF OF RS.8 86 110/-. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 7. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED ASSE SSING OFFICER HAS DISALLOWED RS.8 86 110/- BY OBSERVING THAT THERE WA S A DIFFERENCE OF - 5 - RS.1 34 508/- IN THE LEDGER ACCOUNT OF M/S.MADHAV L ABOUR SUPPLIERS AND IN THE PROFIT & LOSS ACCOUNT AND THE ASSESSEE HAS IN T HE LEDGER ACCOUNT OF M/S.MADHAV LABOUR SUPPLIERS CLAIMED EXCESS LABOUR C HARGES OF RS.7 51 502/- IN THE ACCOUNT OF M/S.MADHAV LABOUR SUPPLIERS WHEN COMPARE TO THE LEDGER ACCOUNT OF THE ASSESSEE IN TH E BOOKS OF M/S.MADHAV LABOUR SUPPLIERS AND THE SAID EXCESS AMOUNT WAS CLA IMED BY THE ASSESSEE AS CASH PAYMENT IN HIS BOOKS OF ACCOUNT WHICH WAS DENI ED BY SAID M/S.MADHAV LABOUR SUPPLIERS. THE LEARNED ASSESSING OFFICER FU RTHER OBSERVED THAT NO EXPLANATION OF THE ABOVE DISCREPANCIES WAS FURNISHE D BY THE ASSESSEE. WE FIND THAT THE ASSESSEE EXPLAINED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE ABOVE DISCREPANCY WAS ON ACCO UNT OF CASH PAYMENT TO CASUAL WORKERS FOR WHICH PROPER VOUCHERS AND RECORD WERE MAINTAINED BY THE ASSESSEE . THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE ABOVE ADDITION ON THE GROUND THAT THE EXPENSES CLAIMED UNDER THE HEAD LABOUR CHARGES COMPARES FAVOURABLY WITH THE EARLIER YEAR AND THE RATE OF PROFIT DECLARED BY THE ASSESSEE WAS BETTER THAN EAR LIER YEAR. WE THUS FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) DELETED THE ADDITION WITHOUT VERIFYING THE GENUINENESS OF THE EXPENDITUR E AND VOUCHERS WHICH WERE CLAIMED TO HAVE BEEN MAINTAINED BY THE ASSESSE E MERELY BY COMPARING THE AMOUNT OF EXPENSES WITH THE EXPENSES OF EARLIER YEAR. IN OUR CONSIDERED VIEW THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) WAS NOT JUSTIFIED IN DELETING THE ADDITION WITHOUT VERIFYING THE DETA ILS OF EXPENSES AND WITHOUT SATISFYING HIMSELF WITH THE GENUINENESS OF THE EXPE NSES. IN THE CIRCUMSTANCES IN OUR CONSIDERED OPINION IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THE ISSUE BACK TO THE FILE OF THE LEARN ED ASSESSING OFFICER FOR PROPER VERIFICATION AND THEREAFTER DECIDE THE ISSUE AFRESH AS PER LAW. WE ORDER ACCORDINGLY AND DIRECT LEARNED ASSESSING OFFI CER TO REFRAME THE ASSESSMENT AFRESH AFTER PROPER VERIFICATION OF RECO RDS AND VOUCHERS AND AFTER - 6 - ALLOWING SUFFICIENT OPPORTUNITY OF HEARING TO THE A SSESSEE. THUS THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.II IS DIRECTED AGAINST DELETION OF AD DITION OF RS.6 62 292/- ON ACCOUNT OF DISALLOWANCE OF BAD DEB TS. 10. THE BRIEF FACTS OF THE CASE ARE THAT LEARNED A SSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED BAD DEBT OF RS.6 62 292/- IN THE RETURN OF INCOME IN THE IMMEDIATELY PRECEDING Y EAR THERE WAS NOT SUCH WRITE OFF. FROM THE DETAILS FILED BY THE ASSESSEE THE LEARNED ASSESSING OFFICER FOUND THAT GEB MADE PAYMENT OF RS.81 23 385 /- AGAINST THE BILL AMOUNT OF RS.87 58 636/- AND DEDUCTED A SUM OF RS.6 35 251/- ON ACCOUNT OF PENALTY AND EXCESS CLAIM OF EXCISE DUTY AND SALES T AX. THE ASSESSEE SUBMITTED THAT THE DEDUCTION OF RS.6 35 251/- MADE BY GEB WAS CLAMED AS BAD DEBT CONSIDERING THE AMOUNT AS NOT RECOVERABLE. THE LEARNED ASSESSING OFFICER NOTED THAT THE DEBT AROSE ON ACCOUNT OF TRA NSACTION MADE DURING THE YEAR UNDER CONSIDERATION ITSELF. THE ASSESSEE HARDL Y MADE ANY EFFORT FOR RECOVERY NOR GEB HAS STATED ANYWHERE THAT IT WOULD NOT PAY THE BALANCE AMOUNT. THERE IS NOTHING TO ESTABLISH THAT DEBT HAS BECOME BAD. IT APPEARS TO BE A GOOD DEBT WHICH SHOULD HAVE BEEN SHOWN AS ASSE TS IN THE BALANCE SHEET AS ON 31.03.2001. A GOOD DEBT DOES NOT BECOME BAD M ERELY BY ASSESSEES VOLUNTARY ACT OF WRITING IT OFF. THEREFORE HE DISA LLOWED BAD DEBT OF RS.6 35 251/-. 11. IN APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER:- 6.5 I HAVE CONSIDERED THE SUBMISSIONS MADE AS WELL AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN - 7 - THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE ARE CONSIDERED. THE DECISIONS RE LIED UPON BY THE APPELLANT ARE PERUSED. THE STATEMENT FURNISHED BY T HE APPELLANT REVEALED THAT GEB HAS MADE DEDUCTIONS FROM SALE BIL LS WHICH ARE TREATED BY THE APPELLANT AS AMOUNT NOT RECOVERABLE. THE SAME ARE FOUND TO BE EITHER TOWARDS LATE DELIVERY OF MATERIA L OR TOWARDS RATE DIFFERENCE. 6.6 THE CONTENTION OF THE COUNSEL IS ALSO FOUND TO BE CONVINCING THAT EVEN IF THE SAME IS CLAIMED UNDER WRONG HEAD NOMENCLATURE WILL REMAIN SAME AND ONCE IT IS ESTABLISHED THAT REALIZA TION OF SALE PROCEEDS IS SHORT (AFTER DEDUCTION BY GEB) THE SAME CANNOT BE TAXED HYPOTHETICALLY OR NOTIONALLY. IT IS THE CONTENTION OF THE APPELLANT THAT THE CONCEPT OF REAL INCOME HAS TO BE CONSIDERED AND THERE IS NO JUSTIFICATION ON THE PART OF THE AO TO TAX SUCH INC OME WHICH IS NEITHER ACCRUED NOR ARISEN NOR RECEIVABLE FROM GEB. IT IS OBSERVED THAT SUCH DEDUCTION HAS BEEN CLAIMED BY THE APPELLANT IN THE FINAL ACCOUNTS ON THE GROUND THAT AMOUNT OF SALE PROCEEDS WAS DEDUCTE D BY GEB AUTHORITIES AND NOT RECEIVED BY THE APPELLANT. CONS IDERING THE OVERALL FACTS OF THE APPELLANTS CASE I HOLD THAT THERE IS NO JUSTIFICATION FOR MAKING SUCH DISALLOWANCE FOR THE AMOUNT WHICH HAS B EEN DEDUCTED FROM SALE BILLS. I DIRECT THE AO TO ALLOW RELIEF OF RS.6 35 251/-. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 13. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE LEARNED ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED RS.6 35 251/- UNDER THE HEAD BAD DEBT . ACCORDING TO THE LEARNED ASSESSING OFFICER THE SAME REPRESENTS SHORT PAYMENT RECEIVED BY THE ASSESSEE AGAINST THE BILL OF RS.87 58 636/- FRO M GEB. AGAINST THE AFORESAID BILL OF RS. 87 58 636/- THE GEB PAID RS. 81 23 385/- ONLY TO THE ASSESSEE AND DEDUCTED RS.6 35 251/- ON ACCOUNT OF P ENALTY AND EXCESS CLAIM OF EXCISE DUTY AND SALE TAX. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW - 8 - THAT THE ASSESSEE HAS NOT PROVED THAT THIS AMOUNT O F RS.6 35 251/- ACTUALLY BECAME BAD AND THE ASSESSEE HAS NOT TAKEN ANY STEP TO RECOVER THIS AMOUNT AND THEREFORE HE TREATED THE SAME AS GOOD DEBT AND DISALLOWED THE CLAIM FOR DEDUCTION OF RS.6 35 251/-. ON APPEAL THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT RS.6 35 251/- WAS DEDUCT ED BY GEB OUT OF THE BILL OF THE ASSESSEE AND SO THIS AMOUNT WAS NEVER A CCRUED TO THE ASSESSEE AS INCOME AND THEREFORE THE SAME COULD NOT FORM PART OF TAXABLE INCOME OF THE ASSESSEE. WE FIND THAT THE LEARNED DEPARTMENTAL REP RESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS). IT IS NOT IN DISPUTE THAT RS.6 35 251 /- WAS IN FACT DEDUCTED BY GEB FROM THE BILL OF THE ASSESSEE OF RS.87 58 636/- ON ACCOUNT OF PENALTY AND EXCESS CLAIM OF EXCISE DUTY AND SALES TAX AND T HIS AMOUNT WAS WRITTEN OFF AS IRRECOVERABLE BY THE ASSESSEE IN ITS BOOKS O F ACCOUNT. THE REVENUE COULD NOT BRING ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAD RIGHT TO RECEIVE THIS AMOUNT AND THE ASSESSEE HAD IN FACT RE CEIVED THIS AMOUNT ON A LATER DATE. IN THE CIRCUMSTANCES IN OUR CONSIDERE D OPINION THE DEDUCTION WHICH WAS MADE BY CONTRACTOR OUT OF THE BILL OF THE CONTRACTEE BEING A GENUINE LOSS IN THE COURSE OF THE BUSINESS COULD NO T HAVE BEEN DISALLOWED BY THE LEARNED ASSESSING OFFICER. WE THEREFORE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE WHICH IS DISMISSED. 15. BEFORE PARTING WITH THIS GROUND OF APPEAL WE OBSERVED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ALL OWED RELIEF TO THE ASSESSEE OF RS.6 35 251/- BY DELETING THE DISALLOWA NCE MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF BAD DEBT CLAIMED BY THE ASSESSEE. THE REVENUE HAS TAKEN THE GROUND OF APPEAL BEFORE US TH AT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN DELETI NG THE DISALLOWANCE OF RS.6 62 292/- ON ACCOUNT OF BAD DEBT MADE BY THE LE ARNED ASSESSING - 9 - OFFICER. THE REVENUE SHOULD NOT TAKE GROUND OF APP EAL IN SUCH A CASUAL MANNER WHEREIN EVEN THE FIGURE IS NOT STATED CORREC TLY. FURTHER EVEN DURING THE COURSE OF THE HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT POINTED OUT THIS MISTAKE TO THE TRIBUNAL. THIS CAS UAL APPROACH IN FILING APPEAL BEFORE THE TRIBUNAL BY THE REVENUE SHOULD BE AVOIDED. 16. GROUND NO.III RELATES TO DELETION OF ADDITION OF RS.36 000/- UNDER SECTION 40A(2)(B) ON ACCOUNT OF EXCESSIVE CON SULTANCY CHARGES PAID TO WIFE OF A DIRECTOR. 17. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARN ED ASSESSING OFFICER FOUND THAT SMT. PRASHANTIBEN B. SHAH IS WIF E OF THE DIRECTOR MR. BHARGAV SHAH AND WAS PAID CONSULTANCY CHARGES OF RS .96 000/- DURING THE YEAR. THE ASSESSEE EXPLAINED THAT SMT. PRASHANTIBE N SHAH IS QUALIFIED BACHELOR OF BUSINESS ADMINISTRATION FROM UNIVERSITY OF TEXAS HUSTON USA AND IS WORKING AS INTERNATIONAL MARKETING CONSULTAN T FOR THE COMPANY. ACCORDING TO THE LEARNED ASSESSING OFFICER NO EVID ENCE REGARDING RESOLUTION FOR APPOINTING SMT. PRASAHANTI B. SHAH AS INTERNATIONAL MARKETING CONSULTANT OF THE COMPANY TERMS AND CONDITIONS OF SUCH CONSULTANCY CONTRACT/CORRESPONDENCE DETAILS WITH THE FIRM PARTI ES BY SMT. PRASHANTI B. SHAH ANY BUSINESS ORDER PROCURED BY SMT. PRASHANTI B SHAH ETC. WERE FURNISHED. IN EARLIER YEARS THE ASSESSEE HAS NOT PAID ANY SUCH COMMISSION TO SMT. PRASHANTI B. SHAH. HE THEREFORE HELD THAT TH E CLAIM OF CONSULTANCY CHARGE IS NOT WHOLLY AND EXCLUSIVELY FOR THE BUSINE SS PURPOSES OF THE ASSESSEE COMPANY AND THE CLAIM IS EXCESSIVE AND UNR EASONABLE. THE LEARNED ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT TOGETHER WITH SECTION 37(1) OF THE ACT HELD THAT RS.36 000/- WAS EXCESSIVE AND THEREBY DISALLOWED THE SAME. - 10 - 18. IN APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER:- 7.7. I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE ARE CONSIDERED. THE DECISIONS RE LIED UPON BY THE APPELLANT ARE PERUSED. THE CONTENTION OF THE COUNSE L IS FOUND TO BE CONVINCING THAT THERE IS NO JUSTIFICATION FOR MAKIN G DISALLOWANCE INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WITHOUT ANY COMPARABLE CASE BEING NOT BROUGHT ON RECORD BY THE AO. SINCE SHE IS QUALIFIED AND HAVING BUSINESS EXPERIENCE I AM OF T HE VIEW THAT PAYMENT MADE IS QUITE REASONABLE AND AO IS DIRECTED TO ALLOW THE SAME AS CLAIMED AND MORE PARTICULARLY WHEN THERE IS SUBSTANTIAL INCREASE IN SALES AS WELL AS NET PROFIT DURING THE YEAR. 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 20. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE LEARNED ASSESSING OFFICER DISALLOWED RS.36 000/- OUT OF TOTAL CONSULTANCY CHARGES OF RS.96 000/- PAI D TO SMT. PRASHANTIBEN SHAH BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ABO VE ADDITION ON THE GROUND THAT THE LEARNED ASSESSING OFFICER HAS BROUG HT NO MATERIAL ON RECORD TO SHOW THAT CONSULTANCY CHARGES OF RS.60 000/- WAS ONLY REASONABLE CONSIDERING THE MARKET VALUE OF THE SERVICES RENDER ED BY SMT. PRASHANTIBEN SHAH AND IN ABSENCE OF ANY VALID BASIS BROUGHT ON RECORD THE DISALLOWANCE MADE IS UNSUSTAINABLE. WE FIND THAT THE LEARNED DEP ARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS ALSO OBS ERVED THAT THE - 11 - DISALLOWANCE OF RS.36 000/- WAS MADE BY THE LEARNED ASSESSING OFFICER ARBITRARILY WITHOUT BRINGING ON RECORD ANY BASIS FO R SUCH DISALLOWANCE. IN THE CIRCUMSTANCES WE DO NOT FIND ANY GOOD REASON TO IN TERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHI CH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 22. GROUND NO.IV RELATES TO DELETION OF ADDITION O F RS.59 264/- MADE BY THE AO BY WAY OF DISALLOWANCE FOR PERSONAL ELEMENT OUT OF FOREIGN TRAVELLING EXPENSES CLAIMED IN RESPECT OF DIRECTOR AND HIS WIFE. 23. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARN ED ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAS CLAIMED AN EXPENSE OF RS.2 96 317/- ON ACCOUNT OF FOREIGN TRAVEL. HE ALS O OBSERVED THAT VISITS TO USA AND SINGAPORE HAVE BEEN MADE BY THE DIRECTOR SH RI BHARGAV SHAH AND HIS WIFE SMT.PRASHANTIBEN B. SHAH. HE REQUIRED THE ASSESSEE TO GIVE DETAILS OF PURPOSE OF FOREIGN TOUR WITH THEIR NEXUS WITH AS SESSEES BUSINESS BUT NO SUCH DETAILS WERE FILED. THEREFORE THE LEARNED ASS ESSING OFFICER WAS OF THE VIEW THAT EVEN THOUGH THE VISITS MAY BE RELATED TO THE ASSESSEES EXPORTS TO AMVECO MEGNATIC USA POSSIBILITY OF EXPENDITURE MA DE BY DIRECTOR AT SINGAPORE AND USA PARTLY FOR NON-BUSINESS PURPOS E CANNOT BE RULED OUT. HE THEREFORE DISALLOWED AN AMOUNT OF RS.1 18 527/- BEING 40% OF EXPENSE ON FOREIGN VISITS. 24. IN APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) HAS OBSERVED AS UNDER:- 8.6. I HAVE CONSIDERED THE SUBMISSIONS MADE AS WE LL AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE ARE CONSIDERED. THE DECISIONS RE LIED UPON BY THE APPELLANT ARE PERUSED. THE CONTENTION OF THE COUNSE L IS FOUND TO BE - 12 - CONVINCING THAT THERE IS NO JUSTIFICATION FOR MAKIN G DISALLOWANCE ON ADHOC BASIS. THOUGH SMT. PRASHANTIBEN SHAH IS WIFE OF DIRECTOR BUT SHE HAD BEEN WORKING FOR THE COMPANY AND POSSESS EX PERTISE KNOWLEDGE FOR EXPORT MARKET. CONSIDERING OVERALL F ACTS AND CIRCUMSTANCES OF APPELLANTS CASE IT WOULD BE JUST AND PROPER TO RESTRICT SUCH DISALLOWANCE TO 20% AS AGAINST 40% DI SALLOWED BY THE AO. THIS WILL COVER UP PERSONAL ELEMENT AS INFERRED BY THE AO. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 26. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSE SSEE CLAIMED DEDUCTION FOR FOREIGN TRAVELLING EXPENSE OF RS.2 96 317/- FOR VIS IT TO SINGAPORE AND USA. THE LEARNED ASSESSING OFFICER FOUND THAT THE DIRECT OR SHRI BHARGAV SHAH AND HIS WIFE SMT. PRASHANIBEN B. SHAH TRAVELLED ABR OAD. IN ABSENCE OF ANY DETAILS SUCH AS PLACES VISITED THE CONNECTION OF T HE SAME WITH ASSESSEES BUSINESS ETC. LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT SOME EXPENSES BEING FOR PERSONAL PURPOSES CANNOT BE RULED OUT AND ESTIMATED SUCH EXPENSE AT 40% OF THE TOTAL FOREIGN TRAVELLING EXPENSE AND MADE DISALLOWANCE OF RS.1 18 527/-. THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) CONSIDERED THE ABOVE DISALLOWANCE AS EXCESSIVE AND HE WAS OF THE VIEW THAT DISALLOWANCE OF 20% ON THE FACTS AND CIRCUMSTANCES OF THE CASE WILL MEET THE ENDS OF JUSTICE AND THEREFORE HE RESTRICTED THE DI SALLOWANCE TO RS.59 264/-. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT S HOW BY BRINING ANY COGENT AND RELEVANT MATERIAL ON RECORD THAT THE PER SONAL EXPENSES WERE HIGHER THAN THAT ESTIMATED AT 20% OF THE TOTAL FORE IGN TRAVELLING EXPENSES BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IN ABSENCE OF ANY SUCH - 13 - MATERIAL HAVING BEEN BROUGHT ON RECORD BY THE REVEN UE WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASONS TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS CONFIR MED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 28. GROUND NO.V RELATES TO DELETION OF ADDITION OF RS.1 68 372/- MADE BY THE AO BY WAY OF DISALLOWANCE OUT OF JOB W ORK CHARGES AS THE ASSESSEE HAD NOT PRODUCED COMPLETE DETAILS FOR VERI FICATION BEFORE A.O. SUCH DETAILS DO NOT APPEAR TO HAVE BEEN PRODUCED EVEN BE FORE LD.CIT(A). 29. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARN ED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED AN E XPENDITURE OF RS.20 20 729/- ON ACCOUNT OF JOB WORK CHARGES. THE ASSESSEE FILED DETAILS OF JOB WORK CHARGES WHEREFROM THE LEARNED ASSESSING OF FICER OBSERVED THAT AT SR. NO.13 OF THE PARTICULARS IT HAS BEEN MENTIONED THAT EXPENSES OF RS.6 08 004/- WERE MADE IN CASH AND AT SR. NO.14 PA YMENT OF RS.2 33 856/- WAS STATED TO BE MADE TO OTHERS FOR WHICH NO FURTHE R DETAILS WAS GIVEN. THE ASSESSEE EXPLAINED THAT PAYMENTS HAVE BEEN MADE TO VARIOUS PERSONS IN A SMALL AMOUNT AND IT WAS NOT POSSIBLE TO MAKE PAYMEN T TO CHEQUE TO SUCH PERSONS. THE LEARNED ASSESSING OFFICER OBSERVED THA T PAYMENTS HAVE BEEN SHOWN IN THIS ACCOUNT IN CASH AS WELL AS THE PAYMEN T TO OTHERS WERE NOT FULLY AND COMPLETELY VERIFIABLE. HE THEREFORE ESTIMATED 20% OF SUCH EXPENDITURE TO BE FOR NON-BUSINESS PURPOSES AND MADE DISALLOWAN CE OF RS.1 68 372/-. 30. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS OBSERVED AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE AS WELL AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE ARE CONSIDERED. THE DECISION REL IED UPON BY THE APPELLANT IS ALSO PERUSED. THE AO HAS DEALT WITH T HE ISSUE IN PARAS 8 - 14 - AND 8.1 OF THE ASSESSMENT ORDER AND INFERRED THAT S UCH EXPENSES ARE NOT VERIFIABLE AND PERTAIN TO NON-BUSINESS PURPOSE. IT IS THE CONTENTION OF THE APPELLANT THAT THERE IS NO JUSTIFICATION FOR MAKING SUCH ADHOC ADDITION WHEN THE APPELLANT HAS MAINTAINED COMPLETE DETAILS AND SAME WERE FURNISHED BEFORE THE A.O. AS AND WHEN CALLED F OR DURING THE ASSESSMENT PROCEEDINGS. IT IS ALSO SUBMITTED THAT T HE APPELLANT BEING AN ARTIFICIAL JURIDICAL PERSON THERE CANNOT BE NON -BUSINESS PURPOSE FOR INCURRING JOB WORK CHARGES AND MORE PARTICULARLY WH EN THE SAME ARE REASONABLE AND COMMENSURATE WITH THE SIZE OF BUSINE SS. I DO NOT SEEN ANY REASONS TO MAKE DISALLOWANCE @ 20% ON ADHOC BAS IS. AS DISCUSSED EARLIER THE NET PROFIT DURING THE YEAR H AS GONE UP CONSIDERABLY AND THEREFORE THERE IS NO JUSTIFICATI ON FOR MAKING ADHOC DISALLOWANCE AND MORE PARTICULARLY WHEN THE SAME AR E REQUIRED TO BE INCURRED FOR THE PURPOSE OF BUSINESS. THE A.O. IS D IRECTED TO DELETE THE SAME. 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 32. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSES SEE CLAIMED EXPENDITURE OF RS.20 20 729/- FOR TOTAL JOB WORK CHARGES. OUT OF T HIS THE LEARNED ASSESSING OFFICER OBSERVED THAT CASH PAYMENTS WERE MADE OF RS .6 08 004/- AND PAYMENT OF RS.2 33 856/- WAS SHOWN TO HAVE BEEN MAD E TO OTHERS FOR WHICH NO FURTHER DETAILS WERE PROVIDED. FROM THIS THE LE ARNED ASSESSING OFFICER INFERRED THAT THE PAYMENTS ARE NOT COMPLETELY VERIF IABLE. HE ESTIMATED 20% OF (RS.6 08 004/- + RS.2 33 856/- ) TO BE FOR NON-B USINESS PURPOSES AND MADE A DISALLOWANCE OF RS.1 68 372/-. IN APPEAL TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING THAT ASSESSEE IS A ARTIFICIAL JURIDICAL PERSON THERE CANNOT BE N ON-BUSINESS PURPOSE FOR INCURRING JOB WORK CHARGES AND THE JOB WORK CHARGES ARE REASONABLE AND - 15 - COMMENSURATE WITH THE SIZE OF BUSINESS AND THE DISA LLOWANCE WAS MADE BY THE LEARNED ASSESSING OFFICER ON ADHOC BASIS FOR WH ICH THERE WAS NO JUSTIFICATION AND DELETED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER. WE FIND THAT THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) DELETED THE ENTIRE ADDITION BY SIMPLY OBSERVING THA T THE TOTAL EXPENSES CLAIMED UNDER THE HEAD WAS REASONABLE WITHOUT BRINI NG ON RECORD ANY MATERIAL ON THE BASIS OF WHICH HE HAS ARRIVED AT TH IS CONCLUSION. SUCH NON SPEAKING ORDER CANNOT BE SUSTAINED. WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THAT DETAILS OF JOB CHARGES OF RS.6 08 004/ - WAS NOT FILED BEFORE IT. THE DISALLOWANCE OF 20% OUT OF THE SAME WAS MADE BY THE LEARNED ASSESSING OFFICER ONLY FOR THE REASON THAT THE PAYM ENTS WERE IN CASH AND THE ASSESSEE EXPLAINED THAT AS THE PAYMENTS WERE OF SMA LL AMOUNT TO A NUMBER OF PERSONS AND THEREFORE THE PAYMENTS WERE MADE IN CASH. ON THE ABOVE CIRCUMSTANCES WITHOUT FINDING ANY DEFECT IN SUCH P AYMENT THE LEARNED ASSESSING OFFICER WAS NOT EMPOWERED TO MAKE ANY DIS ALLOWANCE OUT OF SUCH EXPENDITURE. IN RESPECT OF BALANCE JOB WORK CHARGE S OF RS.2 33 856/- THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAS SIMPLY STATED THAT PAYMENTS WERE MADE TO SUNDRY PARTIES AND NO FURTHER DETAILS COULD BE FILED BY THE ASSESSEE. WE FIND THAT THE DETAILS OF THE EX PENSES OF RS.2 33 856/- CLAIMED BY THE ASSESSEE COULD NOT ALSO BE FILED BY THE ASSESSEE EITHER BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OR BEFORE US. IN THE CIRCUMSTANCES IN OUR CONSIDERED VIEW THE LEARNED ASSESSING OFFICERS DECISION TO DISALLOW 20% OF THE SAME BY TREATING IT AS INFLATION IN EXPENSES CANNOT BE FOUND AS FAULTY. WE THEREFORE MODIFY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND RESTRICT TH E DISALLOWANCE OF THE JOB WORK CHARGES TO 20% OF RS.2 33 856/- AND PARTLY ALLOW THIS GROUND OF APPEAL OF THE REVENUE. - 16 - 34. GROUND NO.VI RELATES TO DELETION OF ADDITION O F RS.58 260/- MADE BY LEARNED ASSESSING OFFICER IN RESPECT OF EXC ISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS. 35. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARN ED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY IS ENGAG ED IN MANUFACTURING OF TRANSFORMERS AND COILS. IN THE TAX AUDIT REPORT TH E AUDITOR HAS MENTIONED THAT EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GO ODS HAS NOT BEEN INCLUDED IN THE VALUE OF CLOSING STOCK OF FINISHED GOODS. TH E ASSESSEE EXPLAINED THAT CLOSING STOCK OF FINISHED GOODS DOES NOT INCLUDE EX CISE DUTY PAYABLE THEREON AND NO PROVISION WAS MADE FOR THE SAME. FURTHER IT WAS ALSO SUBMITTED THAT THE SAME WILL NOT EFFECT THE PROFIT FOR THE YEAR AS THE CLOSING STOCK OF FINISHED GOODS AS PER THE BALANCE SHEET AS AT 31.03.2001 WAS RS.3 64 127/- AND CONSIDERING THE EXCISE DUTY @ 16% THE SAME WORKS O UT TO RS.58 260/-. FROM THE COPY OF RT-12 RETURN FILED BY THE MONTH OF APRIL 2001 IT CAN BE SEEN THAT DUTY OF RS.2 27 645/- WAS DEBITED ON CLEA RANCES MADE. THE LEARNED ASSESSING OFFICER WAS OF THE OPINION THAT E XCISE DUTY IS LEVIABLE AT THE TIME OF MANUFACTURING OF GOODS AND ACCORDINGLY COST OF FINISHED GOODS AS PER METHOD OF ACCOUNTING OF THE ASSESSEE SHOULD INCLUDE COST ELEMENT OF EXCISE DUTY. SINCE LIABILITY OF EXCISE DUTY HAS AL READY ACCRUED THE SAME SHOULD HAVE BEEN SHOWN AS PART OF CLOSING STOCK AND SINCE THIS WAS NOT DONE FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. 188 ITR 44 THE LEARNED ASSESSING OFFICE R MADE ADDITION OF RS.58 260/- TO THE VALUE OF CLOSING STOCK ON ACCOUN T OF EXCISE DUTY AND ALSO HELD THAT AS THE SAME WAS NOT PROVIDED IN THE BOOKS OF ACCOUNT NO DEDUCTION UNDER SECTION 43B OF THE ACT IS ALLOWED. 36. IN APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) OBSERVED AS UNDER:- - 17 - 11.6. I HAVE CONSIDERED THE SUBMISSIONS MADE AS W ELL AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE A PPELLANT. THE FINDING OF LEARNED ASSESSING OFFICER IN THE ASSESSM ENT ORDER IS ALSO CONSIDERED. THE ARGUMENTS OF JCIT/ACIT AT APPELLATE STAGE ARE CONSIDERED. THE DECISION RELIED UPON BY THE APPELLA NT ARE PERUSED. 11.7. THE LEGISLATURE HAS ENACTED SECTION 145A W.E .F. 1.4.1999. THE RATIO LAID DOWN IN THE CASE OF CIT VS. ENGLISH ELECTRIC CO. OF INDIA LTD. 243 ITR 512 (MAD) AND CIT VS. INDO NIPPO N CHEMICALS CO. LTD. 261 ITR 275(SC) IS NOW NOT ACCEPTABLE IN V IEW OF INSERTION OF SECTION 145A OF THE ACT AND EXCISE DUTY NOW CAN BE ADDED TO THE CLOSING STOCK. HOWEVER IN VIEW OF SECTION 43B AS E XISTING IN THE ACT AND INSERTED W.E.F. 1.4.1984 GOVERNING THE ALLOWABI LITY OF DEDUCTION FOR TAX DUTY OR CESS ETC WITH REFERENCE TO ACTUAL PAYMENT AND IN VIEW OF SECTION 145A WHICH REFERS TO THE LIABILITY PAID AS WELL AS INCURRED. IN THIS BACKGROUND THE ONLY CONTENTION OF THE APPE LLANT IS THAT THE AMOUNT OF EXCISE DUTY ON THE FINISHED GOODS IN THE CLOSING STOCK WAS SUBSEQUENTLY PAID ON THE SALE OF THESE GOODS WHICH TOOK PLACE BEFORE THE DUE DATE OF FILING OF RETURN AND HENCE WAS DEDU CTIBLE U/S. 43B(A) READ WITH THE FIRST PROVISO THERETO AND THAT IT HA S NOT CLAIMED IN THIS YEAR. THE ACTION OF THE AO OF MAKING ADDITION OF EX CISE DUTY IN DEDUCTION UNDER SECTION 43B(A) READ WITH THE FIRST PROVISO IN RESPECT OF EXCISE DUTY PAID ON THE FINISHED GOODS IN CLOSIN G STOCK TO THE EXTENT IT WAS SOLD AND THE EXCISE DUTY WAS ACTUALLY PAID B Y THE DUE DATE OF FILING OF RETURN FOR THIS ASSESSMENT YEAR. 11.8. THE CONTENTION OF THE COUNSEL IS ALSO FOUND TO BE CONVINCING THAT THERE IS DECREASED IN CLOSING STOCK OF FINISHED GOODS SINCE OPENING STOCK OF FINISHED GOODS WAS WORTH RS. 12 39 381/- AS AGAINST CLOSING STOCK OF FINISHED GOODS OF RS.2 73 905/- WHICH IS EVIDENT FROM THE AUDITED FINAL ACCOUNTS-SCHEDULE-E . CONSIDERING THE REDUCTION IN FINISHED GOODS AS ON 31.03.2001 AS COM PARED TO THE SAME AS ON 31.03.2000 THE ADDITION MADE BY THE AO IS NO T JUSTIFIABLE. THE EFFECT OF THE SAME IS REQUIRED TO BE CONSIDERED FOR BOTH OPENING AND CLOSING STOCK. THE AO. IS THEREFORE DIRECTED TO AL LOW RELIEF ACCORDINGLY. 37. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 38. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). - 18 - 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED EXCISE DUTY ON FINISHED GOODS IN ITS VALUATION OF CLOSING STOCK. THE LEARNED ASSESS ING OFFICER THEREFORE ESTIMATED THE AMOUNT OF SUCH EXCISE DUTY AT RS.58 2 60/- AND ADDED THE SAME TO THE VALUE OF THE CLOSING STOCK AND OPINED THAT D EDUCTION FOR CORRESPONDING EXCISE DUTY PAID SUBSEQUENTLY CANNOT BE ALLOWED UND ER SECTION 43B AS THE ASSESSEE HAS NOT DEBITED THE SAME IN ITS BOOKS OF A CCOUNT. THE LEARNED ASSESSING OFFICER THUS ADDED RS.58 260/- TO THE INC OME OF THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FINDING THAT RS.2 27 645/- WAS PAID BY THE ASSESSEE AS EXCISE DUTY IN THE MONT H OF APRIL 2001 HELD THAT DEDUCTION UNDER SECTION 43B IS ALLOWABLE TO THE ASS ESSEE AND THEREFORE DELETED THE ADDITION OF RS.58 260/-. THUS THE SHOR T QUESTION WHICH REQUIRES OUR ADJUDICATION IS THAT FOR ALLOWING DEDUCTION UND ER SECTION 43B IS IT MANDATORY TO DEBIT THE CORRESPONDING EXPENSE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE FIND FROM A PERUSAL OF PROVISIONS OF S ECTION 43B THAT IRRESPECTIVE OF SYSTEM OF ACCOUNTING I.E. BOOK KEEP ING FOLLOWED BY THE ASSESSEE DEDUCTION UNDER SECTION 43B IS TO BE ALLOW ED IN THE MANNER AS PRESCRIBED IN THE SAID SECTION. THUS IN OUR CONSIDE RED VIEW THE CITA) WAS JUSTIFIED IN ALLOWING DEDUCTION FOR THE EXCISE DUTY FOR WHICH THE LIABILITY WAS INCURRED BY THE ASSESSEE DURING THE RELEVANT YEAR A ND PAYMENT OF WHICH WAS MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FURNISH ING OF THE RETURN. THE ACTION OF THE LEARNED ASSESSING OFFICER IS THEREFOR E UNSUSTAINABLE AND CANNOT BE UPHELD. WE THEREFORE DO NOT FIND ANY ERR OR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH C ONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. - 19 - ITA NO.1430/AHD/2005 ASSESSEES APPEAL. 40. GROUND NO.1 RELATES TO DISALLOWANCE OF SALES C OMMISSION OF RS.13 61 066/-. 41. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE CLAIMED AN EXPENSE OF RS.13 97 816/- OUT OF WHICH 13 61 066/- WAS CLAIMED TO HAVE BEEN CREDITED/PAID TO M/S.MONA ENTERPRISE. IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR 2000-01 EXPENSE ON ACCOUNT OF SALE S COMMISSION WAS THAT RS.4 500/- ONLY AND ALSO IN THE IMMEDIATE SUCCEEDIN G YEAR 2002-03 THE SAME WAS CLAIMED AT RS.93 429/-. FROM THIS THE LEARNED A SSESSING OFFICER CONCLUDED THAT THE SALES COMMISSION CLAIMED DURING THE YEAR WAS ABNORMALLY HIGH. THE ASSESSEE FILED COPY OF ACCOUNT OF M/S.MONA ENTERPRISE FROM WHICH THE LEARNED ASSESSING OFFICER FOUND THAT AMOUNT OF RS.3 04 380/- WAS CREDITED ON 15.05.2000 AND RS.6 3 3 249/- ON 10.08.2000 AND RS.4 23 437/- ON 20.10.2000 AGGREGATING TO RS.1 3 61 066/- AS SALES COMMISSION @ 5.5% FOR SUPPLY OF MATERIAL TO M/S. S ECURE METER LTD. UDAIPUR. OUT OF THE ABOVE CREDITED AMOUNT PAYMENT OF RS.1 50 000/- AND RS.1 25 000/- WERE SHOWN ON 12.03.2001AND 26.03.200 1 RESPECTIVELY AND REMAINING AMOUNT OF RS.10 86 066/- WAS CARRIED FORW ARD TO THE NEXT YEAR. THE ACCOUNT OF M/S.MONA ENTERPRISE WAS SQUARED UP I N THE ASSESSMENT YEAR 2002-03 THROUGH PAYMENTS OF RS.1 LACS ON 7.07.2001 RS.4 30 000/- ON 14.08.2001 AND RS.5 56 066/- ON 3.09.2001 RESPECTIV ELY. THE ABOVE PAYMENTS WERE SHOWN AS MADE THOUGH DEMAND DRAFT OF UNION BANK OF INDIA RACE COURSE BRANCH BARODA. THE ASSESSEE PROD UCED COPIES OF DEBIT NOTES BILL ISSUED BY M/S.MONA ENTERPRISES. THE LE ARNED ASSESSING OFFICER IN ORDER TO VERIFY THE GENUINENESS OF THE CLAIM OF THE SALES COMMISSION ISSUED LETTER UNDER SECTION 133(6) ON 16.09.2003 TO M/S.MONA ENTERPRISES AT THE ADDRESS GIVEN IN THE DEBIT NOTE AND BILL THE S AID LETTER WAS RETURNED - 20 - UNSERVED BY THE \ POSTAL AUTHORITIES WITH THE REMAR KS NOT KNOWN. THEREAFTER THE LEARNED ASSESSING OFFICER TOGETHER W ITH HIS INSPECTOR SHRI M.B.VARIA VISITED THE ADDRESS OF MONA ENTERPRISE ON 6.12.2003 AND ON INQUIRY FOUND THAT THE ADDRESSES IS OF A RESIDENTIA L PREMISES WHERE ONE SHRI AMRUTLAL DHAYABHAI MODI IS RESIDING SINCE THE YEAR 1997-98 WHO STATED THAT NEITHER HE NOR HIS SON KNOWS ANY PARTY BY THE NAME M/S.MONA ENTERPRISES. SIMULTANEOUSLY LETTER UNDER SECTION 1 33(6) WAS ISSUED ON 10.10.2003 TO M/S. SECURE METERS LTD. UDAIPUR REQUE STING HIM TO MENTION WHETHER PURCHASES FROM M/S.NARAYAN POWER TECH LTD. BARODA WAS DIRECT OR THROUGH ANY AGENT AUTHORISED FOR THE PURPOSE. IN IT S REPLY DATED 3.11.2003 M/S. SECURE METERS LTD. STATED THAT ALL THE PURCHAS ES FROM M/S.NARAYAN POWERTECH WAS DIRECT TO THE COMPANY. WHEN THE ASSE SSEE WAS CONFRONTED WITH THIS THE ASSESSEE SUBMITTED THAT THE ADDRESS OF M/S.MONA ENTERPRISE WAS CHANGED AND PROVIDED THE NEW ADDRESS AS 305 NI RAMAN HOUSE OPP. TIMES OF INDIA ASHRAM ROAD AHMEDABAD. THE ASSESSE E FURTHER SUBMITTED THAT ALL THE PAYMENTS WERE CONFIRMED BY M/S.MONA EN TERPRISE AND THAT THE PAYMENTS WERE MADE THROUGH DEMAND DRAFTS DRAWN FROM THE ASSESSEES ACCOUNT WITH UNION OF INDIA. ON INQUIRY THE LEARNE D ASSESSING OFFICER FOUND THAT THE NEW ADDRESS WAS OF ONE SHRI ATUL K. SHAH TAX CONSULTANT WHO ATTENDED ON 8.01.2004 ALONG WITH THE ACCOUNTANT OF THE ASSESSEE AND ADMITTED THAT NO BUSINESS WAS RUNNING FROM HIS OFFI CE AT ASHRAM ROAD AHMEDABAD. ON FURTHER INQUIRY FROM THE UNION BANK O F INDIA IT WAS FOND THAT DRAFT DRAWN ON UNION BANK OF INDIA IN FAVOUR O F MONA ENTERPRISE WERE PAYABLE AT AHMEDABAD. THE SERVICE BRANCH OF UNION BANK OF INDIA AHMEDABAD VIDE LETTER DATED 9.01.2001 CLARIFIED THA T DD NO.469/13754 DATED 13.03.2001 FOR RS.1 49 625/- WAS CANCELLED BY THE PURCHASER AND CREDIT REMITTED TO THE BRANCH ON 17.08.2001. THE L EARNED ASSESSING OFFICER ALSO NOTED THAT THERE WAS NO WRITTEN AGREEMENT WITH M/S.MONA ENTERPRISES FOR MAKING OF PAYMENT AS SALE COMMISSION. THEREFORE THE LEARNED - 21 - ASSESSING OFFICER OBSERVED THAT PAYMENT OF COMMISSI ON WAS NOT FOR ANY GENUINE SERVICE RENDERED BUT MERELY FOR OBTAINING F OR BOGUS BILL AND DISALLOWED THE SAME. 42. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS OBSERVED AS UNDER:- 3.19 I HAVE CONSIDERED THE SUBMISSIONS MADE AS WEL L AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSIDERED. THE ARGUME NTS OF JCIT/ACIT AT APPELLATE STAGE AND REPORT DATED 18.02.2005 ARE CONSIDERED. THE DECISIONS RELIED UPON BY THE APPELLANT ARE PERUSED. THE CONTENTION OF THE APPELLANT IS NOT FOUND TO BE CONVINCING THAT TH E COMMISSION PAYMENT IS GENUINE. THE APPELLANT HAS MADE PART PAY MENT OF SUCH COMMISSION WHICH IS NOT DISPUTED. THE AMOUNT OF COM MISSION IS SHOWN AS INCOME BY MR.RAVEL WHO HAS FILED RETURN IS ALSO NOT DISPUTED. TO ESTABLISH THE GENUINENESS OF COMMISSIO N PAYMENT THE IMPORTANT FACTOR IS NATURE OF SERVICES RENDERED BY THE PARTY. THE ENQUIRY MADE BY THE AO REVEALED THAT THERE WAS DIRE CT SUPPLY TO SECURE METER LTD. UDAIPUR. THERE IS NO MATERIAL EVI DENCE FURNISHED BY THE APPELLANT WHICH CAN PROVIDE THAT MR. RAVAL H AS RENDERED SERVICES TO THE APPELLANT IN THE DEAL WITH SECURE M ETER LTD. UDAIPUR. THE RETURN FILED BY MR. RAVAL CLEARLY INDICATES THA T HE HAS OFFERED AN INCOME WHICH BELOW RS. ONE LAC OUT OF TOTAL SALES C OMMISSION PAID BY THE APPELLANT OF RS.13.61 LACS. THERE IS NO EVIDENC E WHICH CAN PROVE THAT MR.RAVAL WAS HAVING INFRASTRUCTURE SO AS TO PR OVIDE NECESSARY SERVICES TO THE APPELLANT. EVEN EXPENSES CLAIMED BY MR. RAVAL ALSO INCLUDED FURTHER COMMISSION PAID TO PARTIES WORTH R S.9.25 LACS. THIS APPEARS TO BE THE SOLITARY TRANSACTIONS TO AVOID TA X INCIDENCE. 3.20 ON THE POINT OF COMMISSION THE APPELLANT EVEN FAILED TO BRING ON RECORD WHAT QUALIFICATION MR.RAVAL POSSESSES AND WHETHER HE HAS SUFFICIENT BUSINESS KNOWLEDGE IN THE PAST. THOUGH I T IS CORRECT THAT THE AO DID NOT EXAMINE MR.RAVAL BUT ONCE AO PROPOSED T O DISALLOW COMMISSION IT WAS THE DUTY OF THE APPELLANT TO PRO DUCE HIM BEFORE THE AO SO AS TO ESTABLISH HIS CLAIM OF GENUINE COMMISSI ON. THE APPELLANT EVEN FAILED TO PROVIDE CORRECT ADDRESS OF MR.RAVAL. THE AO ALSO ASCERTAINED THAT DIRECTOR OF APPELLANT COMPANY EVEN DO NOT KNOW MR.RAVAL PROPERLY. THE AO ALSO OBSERVED THAT THE AP PELLANT FAILED TO FURNISH ANY COPY OF AGREEMENT WITH MR. RAVAL. EVEN ENQUIRIES REVEALED THAT AMOUNT WAS WITHDRAWN IMMEDIATELY AFTE R THE SAME WAS DEPOSITED IN THE ACCOUNT OF MONA ENTERPRISE. - 22 - 3.21 THE FACTS BROUGHT ON RECORD BY THE AO INDICATE THAT APPELLANT HAS NOT PAID ANY GENUINE COMMISSION AND IT IS MERE A BOOK ENTRY SINCE APPELLANT FAILED TO ESTABLISH THAT COMMISSION TO MR .RAVAL OF MONA ENTERPRISE WAS FOR THE PURPOSE OF BUSINESS IN CONSI DERATION OF SERVICES RENDERED BY HIM. THE LEGAL PRONOUNCEMENTS RELIED UP ON BY THE COUNSEL WILL NOT BE HELPFUL SINCE FACTS ARE ADVERSE IN THE CASE OF APPELLANT. TO JUSTIFY A CLAIM IT IS THE APPELLANT W HO HAS TO PROVE THAT EXPENSE INCURRED WAS FOR THE PURPOSE OF BUSINESS AN D SIMPLY CORRELATING THE SAME WITH INCREASE IN SALES CANNOT BE A VALID PLEA UNLESS SUBSTANTIATED BY MATERIAL EVIDENCE. THOUGH T HE SALES HAVE GONE UP BUT THE EXPENSES HAVE ALSO INCREASED DURING THE YEAR AND HENCE IT WOULD BE INCORRECT TO ACCEPT THE PLEA OF THE COUNSE L THAT SALES INCREASED WAS DUE TO THE EFFORTS OF MR. RAVAL WHO C OULD SECURE MORE BUSINESS FROM SECURE METER LTD. UDAIPUR. 3.22. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANC ES OF THE APPELLANTS CASE I UPHOLD THE ACTION OF THE AO OF M AKING THE DISALLOWANCE OF COMMISSION WHICH NEEDS NO INTERFERE NCE. THE DISALLOWANCE MADE BY THE AO OF RS.13 61 066/- STAND S CONFIRMED. 43. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE REITERATED THE SUBMISSION MADE BEFORE THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) AND RELIED ON THE FOLLOWING DECISIONS. CIT VS. FIVE STAR HOLIDAYS [2007] 294 ITR 54 (DELHI ) WHEREIN IT WAS HELD THAT AO HAVING ACCEPTED THE AMOUNT OF COMMISSI ON PAYMENT IN THE HANDS OF PAYEE BUT ADDING BACK A SUBSTANTIAL PART T HEREOF IN THE HANDS OF ASSESSEE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT AO COULD NOT TAKE CONTRADICTORY STAND IN TWO ASSESSMENTS MADE ON THE SAME DAY ARISING OUT OF THE SAME TRANSACTION. ACIT VS. SHREE SAJJAN MILLS LTD. (2008) 5 DTR 243 WHEREIN IT WAS HELD THAT ASSESSEE HAVING PAID SALES COMMISSION AND BROKERAGE AS PER BUSINESS PRACTICE AND ON THE BASIS OF AGREEMENTS A ND PRODUCED THE DETAILS OF SALES IT CANNOT BE SAID THAT THERE IS NO EVIDENCE O F SERVICES RENDERED BY THE BROKERS OR THAT THE COMMISSION PAYMENTS WERE NOT GE NUINE SIMPLY BECAUSE COUNTERFOILS OF CHEQUES WERE NOT PRODUCED AND THERE WAS DISPARITY IN THE - 23 - RATES OF COMMISSION PAID TO DIFFERENT BROKERS; COMM ISSION PAYMENTS ARE ALLOWABLE AS DEDUCTION. CIT VS. GENESIS COMMET (P) LTD. (2007) 163 TAXMAN 4 82 (DEL) WHEREIN IT WAS HELD THAT ASSESSEE HAVING DISCLOSED THE NAMES OF THE PARTIES WITH WHOM IT HAD DONE BUSINESS THROUGH TWO COMMISSI ON AGENTS AND BOTH THE AGENTS HAVING CONFIRMED RECEIPT OF COMMISSION P AYMENTS DEDUCTION OF PAYMENTS COULD NOT BE DISALLOWED FOR THE REASON THA T THE AGENTS WERE NOT PRODUCED FOR CROSS- EXAMINATION AS THE AO DID NOT TAKE ANY COERCIVE MEASURES TO ENFORCE ATTENDANCE OF ANY OF THE PARTIE S; TRIBUNAL DID NOT COMMIT ANY ERROR IN ALLOWING THE CLAIM FOR DEDUCTIO N OF COMMISSION PAYMENTS AND THEREFORE NO SUBSTANTIAL QUESTION OF LAW ARISES. CIT VS. CHAMAN INDIA P. LTD. (1992) 105 CTR (DEL) 8 0 WHEREIN IT WAS HELD THAT TRIBUNAL HAVING FOUND THAT COMMISSION WAS IN FACT PAID THROUGH BANK TO A GENUINE PARTY WHICH CONFIRMED THA T IT RECEIVED PAYMENT FOR SERVICES ACTUALLY RENDER ITS FINDING IGNORING THE COVENANT THAT PAYMENT WAS TO BE MADE ONLY ON PROCURING ORDER: THAT PAYMEN T WAS NEITHER EXCESSIVE NOR UNREASONABLE IS A FINDING OF FACT. ACIT VS. PUSHPSONS INTERNATIONAL 162 TAXMAN (MAGAZI NE) 42 WHEREIN IT WAS HELD THAT WHERE PAYEES CONFIRMED THA T THEY HAD RECEIVED COMMISSION FROM ASSESSEE FOR SERVICES RENDERED BY T HEM IN CONNECTION WITH ASSESSEES BUSINESS ASSESSING OFFICER WAS NOT JUST IFIED IN DISALLOWING ASSESSEES CLAIM. SMT. SATINDERJIT KAUR VS. ITO (1995) 52 TTJ (CHD) 388 WHEREIN IT WAS HELD THAT PAYMENT OF COMMISSION HAVING BEEN GEN UINE ACTUATED BY COMMERCIAL EXPEDIENCY IN THE CIRCUMSTANCES OF THE C ASE SAME WAS ALLOWABLE. INSPECTING ASSISTANT COMMISSIONER VS. INDIAN ART EM PORIUM (1994) 121 CTR (BOM)(TRIB)(TM) 291 WHEREIN IT WAS HELD TH AT COMMISSION PAID TO VARIOUS PERSONS FOR BRINGING CUSTOMERS (TOURISTS ) TO ASSESSEE'S SHOP - 24 - THOUGH UNVERIFIABLE ALLOWED TO THE EXTENT OF RS. 6 990 AND RS. 10 220 CONSIDERING HIGH TURNOVER. ACIT VS. JAIN METAL COMPONENTS (2005) 95 TTJ (JD) 6 26 WHEREIN IT WAS HELD THAT IN VIEW OF THE FACT THAT ASSESSEE S SALES INCREASED MANIFOLD DUE TO AGENCY SERVICES OF BR COMMISSION PAYMENT TO BR WAS RIGHTLY ALLOWED BY CIT(A). SWASTIC TEXTILE CO. PVT. LTD. VS. CIT. (1984) 150 ITR 155 (GUJ) WHEREIN IT WAS HELD THAT STATEMENT OF THE BROKER T HAT HE HAD BROUGHT THE SELLER AND THE PURCHASER TOGETHER AND THE ADMISSION BY PURCHASER THAT THE BROKER WAS PRESENT WHEN THE NEGOTIATIONS FOR SALE W ERE GOING ON HAVING REMAINED UNCONTROVERTED THE FINDING OF TRIBUNAL TH AT BROKER HAD NOT RENDERED ANY SERVICES AND WAS THEREFORE NOT ENTITLE D TO COMMISSION IS CLEARLY UNREASONABLE. RAMANAND SAGAR VS. DCIT (2002) 256 ITR 134(BOM) WH EREIN IT WAS HELD THAT MERE FACT THAT THE ACCOUNTS OF THE ASSESS EE CONTAIN A DEBIT WILL NOT MAKE THE EXPENSES DEDUCTIBLE; AO IS ENTITLED TO FIN D OUT WHETHER THE SUMS SO PAID ARE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE BU SINESS OF THE ASSESSEE; PAYMENTS SAID TO HAVE BEEN MADE BY ASSESSEE AS EQUI PMENT HIRE CHARGES TO A PARTY OTHERWISE THAN BY ACCOUNT PAYEE CHEQUES NOT S UPPORTED BY CONVINCING DOCUMENTARY PROOF COULD NOT BE ALLOWED AS DEDUCTION BUT PAYMENT MADE TO ANOTHER PARTY BY ACCOUNT PAYEE CHEQUES WAS ALLOWABL E AS DEDUCTION. CIT VS. M.K. BROTHERS (1987) 163 ITR 249 (GUJ) WHE REIN IT WAS HELD THAT AMOUNTS REPRESENTING PURCHASES COULD NOT BE AD DED AS INCOME AS THERE WAS NO EVIDENCE TO CONCLUDE THAT THE TRANSACTIONS W ERE BOGUS. 44 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. - 25 - 45. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE CLAIMED COMMISSIO N EXPENSES OF RS.13 61 066/- AS BEING PAID TO M/S.MONA ENTERPRIS E PROPRIETARY CONCERN MR.RAVAL. THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM BY DOUBTING THE IDENTITY OF MR.RAVAL AS WELL AS BY HOLDING THAT NO ACTUAL SERVICES WERE RENDERED BY MR.RAVAL AS INFERRED FROM THE REPLY REC EIVED FROM M/S.SECURE METER LTD. ON APPEAL LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) CONFIRMED THE ABOVE DISALLOWANCE BY OBSERVING AS UN DER:- 3.19 I HAVE CONSIDERED THE SUBMISSIONS MADE AS WE LL AS ARGUMENTS PUTFORTH BY THE LEARNED COUNSEL FOR THE A PPELLANT. THE FINDING OF AO IN THE ASSESSMENT ORDER IS ALSO CONSI DERED. THE ARGUMENTS OF JCIT/ACIT AT APPELLATE STAGE AND REPOR T DATED 18.02.2005 ARE CONSIDERED. THE DECISIONS RELIED UPO N BY THE APPELLANT ARE PERUSED. THE CONTENTION OF THE APPELLANT IS NOT FOUND TO BE CONVINCING THAT THE COMMISSION PAYMENT IS GENUINE. THE APPELLANT HAS MADE PART PAYMENT OF SUCH COMMISSION WHICH IS N OT DISPUTED. THE AMOUNT OF COMMISSION IS SHOWN AS INCOME BY MR. RAVEL WHO HAS FILED RETURN IS ALSO NOT DISPUTED. TO ESTABLISH THE GENUINENESS OF COMMISSION PAYMENT THE IMPORTANT FACTOR IS NATURE OF SERVICES RENDERED BY THE PARTY. THE ENQUIRY MADE BY THE AO R EVEALED THAT THERE WAS DIRECT SUPPLY TO SECURE METER LTD. UDAIPU R. THERE IS NO MATERIAL EVIDENCE FURNISHED BY THE APPELLANT WHICH CAN PROVIDE THAT MR. RAVAL HAS RENDERED SERVICES TO THE APPELLANT IN THE DEAL WITH SECURE METER LTD. UDAIPUR. THE RETURN FILED BY MR. RAVAL CLEARLY INDICATES THAT HE HAS OFFERED AN INCOME WHICH BELOW RS. ONE LAC OUT OF TOTAL SALES COMMISSION PAID BY THE APPELLANT OF RS. 13.61 LACS. THERE IS NO EVIDENCE WHICH CAN PROVE THAT MR.RAVAL WAS HA VING INFRASTRUCTURE SO AS TO PROVIDE NECESSARY SERVICES TO THE APPELLANT. EVEN EXPENSES CLAIMED BY MR. RAVAL ALSO INCLUDED FU RTHER COMMISSION PAID TO PARTIES WORTH RS.9.25 LACS. THIS APPEARS TO BE THE SOLITARY TRANSACTIONS TO AVOID TAX INCIDENCE. 3.20 ON THE POINT OF COMMISSION THE APPELLANT EVEN FAILED TO BRING ON RECORD WHAT QUALIFICATION MR.RAVAL POSSESSES AND WHETHER HE HAS SUFFICIENT BUSINESS KNOWLEDGE IN THE PAST. THOUGH I T IS CORRECT THAT THE AO DID NOT EXAMINE MR.RAVAL BUT ONCE AO PROPOSED T O DISALLOW COMMISSION IT WAS THE DUTY OF THE APPELLANT TO PRO DUCE HIM BEFORE THE AO SO AS TO ESTABLISH HIS CLAIM OF GENUINE COMMISSI ON. THE APPELLANT EVEN FAILED TO PROVIDE CORRECT ADDRESS OF MR.RAVAL. THE AO ALSO ASCERTAINED THAT DIRECTOR OF APPELLANT COMPANY EVEN DO NOT KNOW - 26 - MR.RAVAL PROPERLY. THE AO ALSO OBSERVED THAT THE AP PELLANT FAILED TO FURNISH ANY COPY OF AGREEMENT WITH MR. RAVAL. EVEN ENQUIRIES REVEALED THAT AMOUNT WAS WITHDRAWN IMMEDIATELY AFTE R THE SAME WAS DEPOSITED IN THE ACCOUNT OF MONA ENTERPRISE. 3.21 THE FACTS BROUGHT ON RECORD BY THE AO INDICATE THAT APPELLANT HAS NOT PAID ANY GENUINE COMMISSION AND IT IS MERE A BOOK ENTRY SINCE APPELLANT FAILED TO ESTABLISH THAT COMMISSION TO MR .RAVAL OF MONA ENTERPRISE WAS FOR THE PURPOSE OF BUSINESS IN CONSI DERATION OF SERVICES RENDERED BY HIM. THE LEGAL PRONOUNCEMENTS RELIED UP ON BY THE COUNSEL WILL NOT BE HELPFUL SINCE FACTS ARE ADVERSE IN THE CASE OF APPELLANT. TO JUSTIFY A CLAIM IT IS THE APPELLANT W HO HAS TO PROVE THAT EXPENSE INCURRED WAS FOR THE PURPOSE OF BUSINESS AN D SIMPLY CORRELATING THE SAME WITH INCREASE IN SALES CANNOT BE A VALID PLEA UNLESS SUBSTANTIATED BY MATERIAL EVIDENCE. THOUGH T HE SALES HAVE GONE UP BUT THE EXPENSES HAVE ALSO INCREASED DURING THE YEAR AND HENCE IT WOULD BE INCORRECT TO ACCEPT THE PLEA OF THE COUNSE L THAT SALES INCREASED WAS DUE TO THE EFFORTS OF MR. RAVAL WHO C OULD SECURE MORE BUSINESS FROM SECURE METER LTD. UDAIPUR. 3.22. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANC ES OF THE APPELLANTS CASE I UPHOLD THE ACTION OF THE AO OF M AKING THE DISALLOWANCE OF COMMISSION WHICH NEEDS NO INTERFERE NCE. THE DISALLOWANCE MADE BY THE AO OF RS.13 61 066/- STAND S CONFIRMED. 46. BEFORE US THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT MR.RAVAL TO WHOM COMMISSION WAS PAID IS AN INCOME TAX ASSESSEE AND HAS SHOWN THE AMOUNT OF COM MISSION PAID BY THE ASSESSEE AS HIS INCOME. IN HIS OPINION AS THE REVE NUE HAS ACCEPTED THE RETURN OF MR.RAVAL AND THEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DI SALLOWANCE OF COMMISSION IN THE HANDS OF THE ASSESSEE. THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE ALSO SUBMITTED THAT MERE ABSENCE OF WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND MR.RAVAL CANNOT JUSTIFY THE INFERENCE DRAWN BY THE REVENUE THAT SUCH PAYMENT OF COMMISSIO N IS WITHOUT ANY SERVICES RECEIVED BY THE ASSESSEE. - 27 - 47. WE FIND THAT THE ABOVE SUBMISSIONS ARE NOT REL EVANT FOR DECIDING THE ISSUE UNDER DISPUTE. IN THE INSTANT CA SE THE CLAIM OF THE ASSESSEE WAS THAT IT HAS PAID COMMISSION OF RS.13 61 666/- TO MR. RAVAL FOR THE SERVICES RENDERED BY MR. RAVAL IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE WAS NEGATED BY THE LEARNE D ASSESSING OFFICER AFTER VERIFYING FROM MR.SECURE METER LTD. WHO HAD I NFORMED THE LEARNED ASSESSING OFFICER THAT PURCHASES BY THEM WERE MAD E DIRECTLY FROM THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES THE REVENUE INFERRED THAT NO SERVICES WERE RENDERED BY MR. RAVAL TO THE ASSESSEE AND THE ALLEGED PAYMENT WAS NOT FOR ANY BUSINESS CONSIDERATION. WE FIND THAT BEFORE US ALSO THE ASSESSEE COULD NOT PRODUCE ANY MATERIAL TO SHOW THAT ANY ACT UAL SERVICES WERE RENDERED BY MR. RAVAL DURING THE COURSE OF THE BUSI NESS OF THE ASSESSEE BY EXPLAINING THE DETAILED ACTIVITIES UNDERTAKEN BY MR . RAVAL AND SUPPORTING MATERIAL FOR THE SAME. THE CONTENTION OF THE ASSESS EE IS THAT MR.RAVAL HAS SHOWN THE RECEIPT FROM THE ASSESSEE IN HIS RETURN O F INCOME AND SUCH RETURN OF INCOME WAS ACCEPTED BY THE DEPARTMENT DOES NOT E VIDENCES THAT THE PAYMENTS WERE MADE BY THE ASSESSEE TO MR. RAVAL ONL Y FOR THE SERVICES RENDERED BY MR. RAVAL DURING THE COURSE OF THE BUSI NESS OF THE ASSESSEE. FURTHER THOUGH WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT A WRITTEN AGREEMENT IS NOT A CONDITION FOR ALLOWANCE OF COMMI SSION EXPENDITURE BUT THAT DOES NOT HELP THE ASSESSEE IN THE INSTANT CASE AS IN THE INSTANT CASE THE FACT OF RENDERING SERVICE BY MR. RAVAL COULD NOT BE ESTABLISHED BY THE ASSESSEE BY BRINGING RELEVANT MATERIAL ON RECORD AN D ON THE ANOTHER HAND THE REVENUE HAS SHOWN THAT IN FACT NO SERVICES WERE REN DERED BY MR. RAVAL BY BRINGING ON RECORD THE CORRESPONDENCE MADE WITH M/S .SECURE METER LTD. WE FIND THAT THE ASSESSEE HAS ALSO BROUGHT NO MATERIAL BEFORE US TO SHOW THAT THE INFERENCE DRAWN BY THE REVENUE FROM THE LETTER OF M /S.SECURE METER LTD. WAS NOT JUSTIFIED OR THE ALLEGED LETTER WAS NOT CORRECT OR NOT RELEVANT. IN THE ABOVE CIRCUMSTANCES WE DO NOT FIND ANY ERROR IN THE ORDE R OF THE LEARNED - 28 - COMMISSIONER OF INCOME TAX(APPEALS) THE SAME IS CO NFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 48. GROUND NO.2 RELATES TO ADDITION OF RS.54 89 21 1/- ON ACCOUNT OF EXCISE DUTY AND RS.18 50 479/- ON ACCOUNT OF SALES TAX IN TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.80HHC. 49. AT THE TIME OF HEARING BOTH THE PARTIES AGREE D THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 HELD THAT EXCISE DUTY AND SALES-TAX ARE NOT INCLUDI BLE IN 'TOTAL TURNOVER' IN THE FORMULA CONTAINED IN S. 80HHC(3). RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SUPREME COURT WE ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 50. GROUND NO.3 RELATING TO CONFIRMATION OF DELETI ON UNDER SECTION 80IB AFTER GIVING DEDUCTION UNDER SECTION 80HHC FRO M GROSS TOTAL INCOME. 51. AT THE TIME OF HEARING BOTH THE PARTIES AGREE D THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE REVENUE BY TH E DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. HINDU STAN MINT & AGRO PRODUCTS (P) LTD. (2009) 119 ITD 107(DELHI)(SB) HE LD THAT IN VIEW OF THE PROVISIONS OF S. 80-IA(9) DEDUCTION UNDER S. 80HHC IS TO BE ALLOWED ON PROFITS AND GAINS AS REDUCED BY THE DEDUCTION CLAIM ED AND ALLOWED UNDER S. 80-IB/80-IA. RESPECTFUL FOLLOWING THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL WE DISMISS THIS GROUND OF THE APPE AL OF THE ASSESSEE. - 29 - ITA NO.686/AHD/2007 ASSESSEES APPEAL 52. THE ONLY ISSUE INVOLVED IN THIS APPEAL OF THE ASSESSEE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE LEVY OF PENALTY OF RS.5 38 302/- UND ER SECTION 271(1)(C) OF THE ACT ON THE GROUND THAT THE COMMISSION PAYMENT C LAIMED BY THE ASSESSEE TO M/S.MONA ENTERPRISE WAS NOT GENUINE. 53. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) HAS CONFIRMED THE PENALTY BY OBSERVING AS UNDER:- 3.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.A. R. AND THE FACTS OF THE CASE. IN THE PRESENT APPEAL THE MATTE R PERTAINS TO LEVY OF PENALTY. IN SUBMISSIONS MADE AT THE TIME OF APPEAL THE LD. A.R. HAS MOSTLY DWELT ON THE ISSUE REGARDING AL LOWABILITY OF THE EXPENSES IN ASSESSMENT PROCEEDINGS. SO FAR AS T HE ALLOWABILITY OF THE CLAIM IS CONCERNED THE MATTER HAS ALREADY BEEN DECIDED BY THE LD.CIT(A). THE DECISION HAS GON E AGAINST THE ASSESSEE. THE FACTS BROUGHT OUT BY THE A.O. CLE ARLY SHOW THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH TH E GENUINENESS OF THE EXPENDITURE. THERE IS A SIGNIFICANT DIFFEREN CE BETWEEN MAKING A BONAFIDE CLAIM EVEN THOUGH MISCONCEIVED O R INCORRECT AND MAKING A FRAUDULENT CLAIM. MAKING A CLAIM OF NON-GENUINE EXPENDITURE AMOUNTS TO CONCEALMENT OF I NCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TWO DECISIONS CITED BY THE LD.A.R. ARE DISTINGUISHABLE ON FACTS SINCE THE EXPLANATION OFFERED BY THE ASSESSEE REGARDING S ERVICES RENDERED WAS NOT ACCEPTED. HERE THE SERIES RENDERE D BY M/S. MONA ENTERPRISES HAVE NOT ONLY NOT BEEN ESTABLISHED EVEN THE ADDRESS OF THE PARTY HAS BEEN SHOWN TO BE BOGUS. TH E MANAGING DIRECTOR OF THE ASSESSEE COMPANY HIMSELF WAS NOT AW ARE OF SHRI RAWAL THROUGH WHOM MOST OF THE SALES WERE CLAIMED TO HAVE BEEN MADE. THE FACT THAT THE SALES MADE TO M/S. SEC URE METERS UDAIPUR (ON WHICH THE COMMISSION WAS CLAIMED TO HAV E BEEN PAID) WERE DIRECT SALES AND NOT SALES MADE THROUGH M/S. MONA ENTERPRISE ITSELF SHOWS THAT THE CLAIM OF COMMISSIO N WAS BOGUS. HENCE IN THE INSTANT CASE IT IS HELD TO HAVE BEEN ESTABLISHED AS - 30 - A FACT THAT THE CLAIM OF COMMISSION PAYMENT WAS NOT GENUINE AND THEREFORE THIS WAS CLEARLY A CASE OF CONCEALM ENT OF INCOME/FURNISHING OF INACCURATE PARTICULARS OF INCO ME. IN THE EVENT I AM SATISFIED THAT THE A.O. WAS FULLY JUSTI FIED IN IMPOSING PENALTY OF RS.5 38 302/-. THE PENALTY IS C ONFIRMED. 54. BEFORE US THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE SUBMITTED THAT THE RELEVANT ADDITION IN RE SPECT OF WHICH PENALTY HAS BEEN LEVIED IS CHALLENGED BY THE ASSESSEE BEFORE TH E TRIBUNAL AND THE QUANTUM APPEAL WAS HEARD EARLIER. 55. WE FIND THAT IN THE QUANTUM APPEAL OF THE ASSE SSEE THE ADDITION WAS FOUND TO BE JUSTIFIED AND APPEAL OF THE ASSESSE E WAS DISMISSED ON THIS GROUND. 56. WE FIND THAT NO SPECIFIC ERROR IN THE IMPUGNED ORDER COULD BE POINTED OUT BY THE ASSESSEE. THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) HAS CONFIRMED THE LEVY OF PENALTY ON T HE GROUND THAT THE LETTER OF M/S.SECURE METER LTD. SHOWS THAT THE COMMISSION CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE FOR BUSINESS CONSIDERATION WAS FOUND TO BE NOT CORRECT. FURTHER THE ATTENDING CIRCUMSTANCES WHICH ALSO SU PPORTS THE ABOVE FINDINGS. WE FIND THAT THE ABOVE FINDING OF THE LEA RNED COMMISSIONER OF INCOME TAX(APPEALS) COULD NOT BE DISPUTED BY THE AS SESSEE AND THEREFORE WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS). WE THEREFORE CONFIRM THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DISMISS THE APPEAL OF THE ASSESSEE. 57. IN THE RESULT THE APPEAL OF THE REVENUE IN IT A NO.1543/AHD/2005 AND OF THE ASSESSEE IN ITA NO.1430 /AHD/2005 ARE PARTLY - 31 - ALLOWED AND THE APPEAL OF THE ASSESSEE IN ITA NO.68 6/AHD/2007 IS DISMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 07 TH DAY OF MAY 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 07 TH DAY OF MAY 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II AND III BARODA 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 03.05.2010 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 05.05.2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 05.05.2010 ------------ ------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 05.05.2010 ----------- -------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 06.05.2010 --------- ----------- 6. KEPT FOR PRONOUNCEMENT ON 07.05.2010 ---------- ---------- 7. FILE SENT TO THE BENCH CLERK 07.05.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------