The ACIT, Indore v. M/s. Sangam Tea Centre,, Indore

ITA 252/IND/2010 | 2004-2005
Pronouncement Date: 29-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 25222714 RSA 2010
Assessee PAN RDMAY2002T
Bench Indore
Appeal Number ITA 252/IND/2010
Duration Of Justice 11 month(s) 1 day(s)
Appellant The ACIT, Indore
Respondent M/s. Sangam Tea Centre,, Indore
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 29-03-2011
Date Of Final Hearing 23-12-2010
Next Hearing Date 23-12-2010
Assessment Year 2004-2005
Appeal Filed On 27-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : AAAFG-9479-K I.T.A.NOS.560 512 513/IND/2009 & 178/IND/2010 A.YS.: 2004-05 2005-06 2006-07 & 2007-08 M/S.GHANSHYAMDAS & CO. DY. CIT 4(1)/ADDL. CIT 34 SIYAGANJ VS RANGE 4 INDORE. INDORE. (ASSESSEE) (RESPONDENT) PAN NO. : AAAFG-9479-K I.T.A.NOS.42/IND/2010 561 & 562/IND/2009 AND 251/IND/2010 A.YS.: 2004-05 2005-06 2006-07 & 2007-08 ACIT M/S.GHANSHYAM DAS & CO. 4(1) VS 34 SIYAGANJ INDORE. INDORE (ASSESSEE) (RESPONDENT) PAN NO. :AADFS7696F I.T.A.NO. 179/IND/2010 A.YS.: 2004-05 M/S. SANGAM TEA CENTRE ACIT 34 SIYAGANJ VS CIRCLE 4(1) INDORE. INDORE. -: 2: - 2 (ASSESSEE) (RESPONDENT) PAN NO. :AADFS7696F I.T.A.NO. 252/IND/2010 A.YS.: 2004-05 ACIT M/S. SANGAM TEA CENTRE CIRCLE 4(1) VS 34 SIYAGANJ INDORE. INDORE. (ASSESSEE) (RESPONDENT) ASSESSEE BY : S/SHRI P.N. DIXIT & SHRI . S. S. SHEETAL ADV. RESPONDENT BY : SHRI S.K. ANAND CIT DR O R D E R PER R. C. SHARMA A.M. THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSM ENT YEARS 2004-05 TO 2007-08 IN THE MATTER OF ORDER PASSED U/ S 143(3) OF THE INCOME-TAX ACT 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. -: 3: - 3 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERS HIP FIRM DERIVING INCOME FROM WHOLESALE TRADING OF TEA. IT DEALS IN TEA PARTLY OF GOODRICKE MAKE WHICH IS PURCHASED IN PACKED FORM THE CONSIGNEE AGENT OF M/S. SANGAM TEA CENTRE INDORE WHICH IS A SISTER CONCERN OF THE ASSESSEE FIRM. FURTHER LOOSE TEA I S PURCHASED FROM THE ABOVE AGENT AS ALSO FROM OTHER PARTIES WHICH IS PACKED AND MARKETED UNDER THE TRADE MARK CAMEL'. DURING THE COURSE OF SCRUTINY ASSESSMENT THE AO MADE ADDITION OF RS. 51 83 185/- TOWARDS UNDISCLOSED COMMISSION INCOME AND ALSO DISALLOWED F OLLOWING EXPENSES :- SALES PROMOTION EXPENSES: (I) (A) DISTRIBUTION OF CELLO PRODUCTS RS.20 00 000 B) DISTRIBUTION OF GOLD COINS RS.89 65 000 C) DISTRIBUTION OF GLASSWARE (I) M/S. MAHAVIR & CO. RS.78 73 842 (II) M/S. KAMINI INDUSTRIES RS.43 23 701 RS.2 31 62 543/- (II ) RS.95 19 975 OUT OF PACKING EXPENSES CLAIMED BY THE ASSESSEE AT RS.1 81 03 850. (III ) SHORTAGE OF GOODS OF RS.59 88 050. -: 4: - 4 (IV) ADVERTISEMENT EXPENSES TO THE TUNE OF RS.30 00 000. (V) BROKERAGE EXPENSES TO THE FOLLOWING PERSONS: (A) SHRI MANNUBHAI SHAH RS.49 020 (B) SHRI SANJAY JAISWAL RS.49 020 RS.98 040 (VI) DEPRECIATION ON MACHINERY TO THE TINE OF RS.2 08 98 5. 4. CONTENTION OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT PROPER OPPORTUNITY WAS NOT GIVEN BY THE ASSESS ING OFFICER TO SUBSTANTIATE THE CLAIM OF VARIOUS EXPENDITURE. A CCORDINGLY THE ADDITIONAL EVIDENCES WERE FILED UNDER RULE 46A( 1) OF INCOME-TAX RULES 1962. SIMULTANEOUSLY THE ASSESSEE ALSO FILED THE WRITTEN SUBMISSIONS CHALLENGING THE VARIO US ADDITIONS/DISALLOWANCES MADE BY THE AO. THE MATTER WAS REMANDED TO THE AO U/S 250(4) OF THE I.T. ACT 1961 TO VERIFY THE FACTS AS SUBMITTED BY THE ASSESSEE IN TH E WRITTEN SUBMISSIONS AND IN THE APPLICATION MADE U/R 46A OF RULES. IN REPLY TO SAME A REMAND REPORT WAS SUBMIT TED BY THE AO PER LETTER DATED 12.2.2008 IN WHICH THE AO H AS NOT -: 5: - 5 RAISED ANY OBJECTIONS TO THE REQUEST OF THE ASSESSE E FOR ADMITTING THE ADDITIONAL EVIDENCES BUT INCORPORATE D DETAILED FINDING AFTER MAKING INQUIRY U/S 133(6) IN RESPECT OF VARIOUS EXPENSES DISALLOWED BY THE ASSESSING OFF ICER AND INCOME ON ACCOUNT OF COMMISSION ADDED BY HIM. A FTER CONSIDERING THE REMAND REPORT THE DISALLOWANCES SO MADE BY THE ASSESSING OFFICER WAS PARTLY DELETED BY THE LD. CIT(A). ADDITION MADE ON ACCOUNT OF ALLEGED COMMISS ION INCOME FROM GOODRICK GROUP WAS ALSO DELETED BY THE LD. CIT(A). BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEF ORE US. FOLLOWING GROUNDS HAVE BEEN TAKEN IN THE ASSESS MENT YEAR 2004-05 GROUNDS TAKEN IN THE OTHER YEARS ARE ALSO COMMON. 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON'BLE CIT(A)II INDORE ERRED - (A) IN CONFIRMING THE ADDITION OF RS. 6 LAKHS OUT OF THE ADDITION OF RS. 89 65 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GOLD -: 6: - 6 COINS UNDER THE HEAD SALES PROMOTION EXPENSES. (B) IN CONFIRMING THE ADDITION OF RS. 20.50 LAKHS BEING 25% OF THE NET CLAIM OF RS. 81 49 972/- OUT OF THE ADDITION OF RS. 1 21 97 542/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PURCHASES OF GLASSWARE FROM M/S. KAMINI INDUSTRIES AND M/S. MAHAVIR & CO. UNDER THE HEAD SALES PROMOTION EXPENSES. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON'BLE CIT(A) INDORE ERRED IN UPHOLDING THE ADDITION OF RS. 14 15 000/- OUT OF THE ADDITION OF RS. 95 19 975/- MADE TO THE RETURNED INCOME BY ADOPTING THE RATE OF LABOUR CHARGES AT RS. 0.80 PER KG. AS AGAINST ACTUALLY PAID @ -: 7: - 7 RS. 2.00/1.50 PER KG. IN PACKING EXPENSES A/C. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON'BLE CIT(A) INDORE ERRED IN UPHOLDING THE ADDITION OF RS. 9 87 000/- OUT OF THE ADDITION OF RS. 59 88 050/- MADE TO THE RETURNED INCOME ON ACCOUNT OF CLAIM OF SHORTAGE BY ACCEPTING THE SHORTAGE AT 1.5 % AS AGAINST THE ACTUAL CLAIM OF THE ASSESSEE @ 1.803 %. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE HON'BLE CIT(A) INDORE ERRED IN UPHOLDING THE ADDITION OF RS. 3 50 000/- OUT OF THE ADDITION OF RS. 30 LAKHS MADE TO THE RETURNED INCOME ON ACCOUNT OF CLAIM OF ADVERTISEMENT EXPENSE. 5) THE APPELLATE ORDER BEING NOT BASED ON FACTS IS ILLEGAL & WRONG. -: 8: - 8 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. FROM THE RECORD WE FOUND THAT DURING THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSEE WAS ASKED TO FURNISH A COPY OF THE AGREEMENT BETWEEN THE ASSESSEE FIRM AND M/S. GOODRICK GROUP LIMITED OR BETWEEN SANGAM TEA CENTRE OR M/S. GOODRICK GROUP LIMITED. AGREEMENT SO FURNISHED WAS DATED 1.4.2005 AND WAS OPERATED FOR THE PERIOD MAY 2002 TO 31.3.2003. THIS AGREEMENT WAS BETWEEN THE GOODRICK GROUP LTD ON THE ONE HAND AND ONE SHRI GHANSHYAM LUDHYANI SHRI MOHANLAL LUDHYANI AND SMT DRAUPADIDEVI LUDHYANI WHO WERE PARTNERS OF M/S. GHYANSHYAM & CO. THE AREA ASSIGNED TO THEM WAS OF ENTIRE STATE OF MADHYA PRADESH AND CHHATTISGARH. THE AO THEREAFTER REFERRED TO VARIOUS CLAUSES OF THIS AGREEMENT AND FINALLY HELD THAT SINCE THE AGREEMENT WAS BETWEEN THE GOODRICK GROUP LTD AND THE ASSESSEE FIRM THE -: 9: - 9 COMMISSION EARNED THEREON WAS NOT DISCLOSED AND HENCE HE ESTIMATED THE SAME AT RS. 51 83 185/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. IN THE COURSE OF SCRUTINY ASSESSMENT THE AO OBSERVED THAT I T IS NECESSARY TO EXAMINE THE NATURE OF BUSINESS. I T IS SEEN THAT THE ASSESSEE HAS SHOWN PURCHASE OF TEA OF BRAND NAME GOODRICKE FROM M/S SANGAM TEA CENTER INDORE WHICH IS A SISTER CONCERN OF THE ASSESSEE. M/S. SANGAM TEA CENTER IS STATED TO BE CONSIGNEE AGENT ON BEHALF M/S. GOODDRICKE GROUP LTD. GETTING 2% COMMISSION ON SALES MADE BY T HE AGENT AND ARE SHOWN ACCORDINGLY IN THEIR RETURN OF INCOME. THE ASSESSEE HAS NOT DISCLOSED ANY COMMISSION IN IT S RETURN OF INCOME. THE ASSESSEE WAS REQUESTED TO FURNISH A COPY OF AGREEMENT IF ANY BETWEEN ASSESSEE AND M/S. GOODDRICK GROUP LTD. OR BETWEEN M/S. SANGAM TEA CENTER AND GOODRICKE GROUP LTD. FOR EARNING 2% AGENCY COMMISSI ON ON SALES OF GOODRICKE BRAND TEA. THE ASSESSEE KEPT ON AVOIDING TO FURNISH COPY OF ANY AGREEMENT FOR THE FINANCIAL YEAR 2003- 04 RELEVANT TO ASSESSMENT YEAR 2004-05. HOWEVER FI NALLY HE -: 10: - 10 FURNISHED A COPY OF AGREEMENT DATED 1.4.2005 WHICH WAS OPERATIVE FOR THE PERIOD MAY 2002 TO 31.03.2003. F IRST THING WHICH IS SUPPORTING IS THAT THIS AGREEMENT IS WRITT EN AFTER A PERIOD OF TWO YEARS AND THE SAID AGREEMENT IS BETWE EN 'GOODRICKE GROUP LTD.' ON ONE HAND AND 1) SHRI GHAN SHYAM LUDHYANI SHRI MOHANLAL LUDHYANI AND SMT. DRAUPADID EVI LUDHYANMI WHO ARE PARTNERS OF M/S GHANSHYAM AND CO. 4 FAFATI LINE RAIPUR WHO WILL BE COLLECTIVELY AND SE VERALLY CALLED THE 'CONSIGNEE ' OR 'AGENT'. THE AREA ASSIGN ED TO THEM IS ENTIRE STATES OF MADHYA PRADESH AND CHATTISGRAH. THE AFORESAID FIRM IS THE BRANCH OF M/S GHANSHYAMDAS AND CO. INDORE. 6. THE RELEVANT CLAUSES OF THE SAID AGREEMENT WAS REPRODUCED BY THE ASSESSING OFFICER IN HIS ORDER W HICH READS AS UNDER :- '(3) THE CONSIGNEE IS ENTITLED TO BE REIMBURSED ALL EXPENSES INCURRED BY THEM ON BEHALF OF THE PRINCIPA L IN RESPECT OF FRIGHT INSURANCE STORAGE CLEARING CHAR GES HANDING CHARGES AND ANY OTHER INCIDENTAL CHARGES IN -: 11: - 11 RESPECT OF TEAS DISPATCHED TO THEM. IN CASE THE TEA S ARE DAMAGED OR LOST IN TRANSIT FOR ANY REASON WHATSOEVE R INCLUDING ACTS OF GOD AND THE CONSIGNEE HAS NOT COVERED SUCH LOSS BY ADEQUATE INSURANCE POLICY AND OR PRINCIPAL SUFFERS ANY LOSS THE CONSIGNEE UNDER TAK ES TO KEEP THE PRINCIPAL ADEQUATELY INDEMNIFIED ON THIS ACCOUNT. 4) THE PRINCIPAL SHALL PAY TO THE CONSIGNEE A CONSOLIDATED COMMISSION INCLUDING DELCREDERE COMMISSION AT THE RATE OF 2% OF THE SALE VALUE OF THE TEAS SO SUPPLIED TO THE CONSIGNEE. THE SALE VALUE W ILL BE ARRIVED AT BY DEDUCTING ALL EXPENSES COST FREI GHT STORAGE CLEARING AND INSURANCE CHARGES. 5) THE CONSIGNEE SHALL BE ENTITLED TO DEDUCT ALL CH ARGES MENTIONED IN CLAUSE 3 (AS WELL AS THE COMMISSION OF 2% MENTIONED IN CLAUSE 4 OUT OF THE SALE PROCEEDS AND SHALL REMIT/PAY AT CALCUTTA OFFICE OF THE PRINCIPAL THE BALANCE TO THE PRINCIPAL FOLLOWING EACH SALE. THE CONSIGNEE SHALL ALSO BE BOUND TO RENDER TO THE -: 12: - 12 PRINCIPAL TRUE ACCOUNT OF SALE IN RESPECT OF EACH A ND EVERY TRANSACTION. 6) THE CONSIGNEE SHALL KEEP PROPER ACCOUNT OF STOCK AND SHALL RENDER TO THE PRINCIPAL A MONTHLY STATEME NT OF STOCK AND SALE TRANSACTION SHOWING THE GOODS RECEIVED BY THEM FROM THE PRINCIPAL DURING THE PREVIOUS MONTH ENDING WITH THE LAST DAY OF THE MONT H IN QUESTION ACCORDING TO ENGLISH CALENDAR. THE STATEME NT SHOULD ALSO SHOW THE STOCK OF GOODS IN THE HAND ON THE DATE OF THE RETURN. 16) THIS AGREEMENT IS MADE TO RUN FOR THE PERIOD COMMENCING FROM 3 RD MAY 2002 TO 31-3-2003 LIABLE HOWEVER TO BE TERMINATED EARLIER IPSOFACTO IN THE E VENT OF BANKRUPTCY OR DISSOLUTION OF THE CONSIGNEE AT TH E EXPIRY OF A NOTICE OF A FORTNIGHT SERVED OR DELIVER ED TO THE CONSIGNEE AT THEIR ADDRESS AFOREMENTIONED OR SE NT BY REGISTERED POST TO THEM AT THE ADDRESS IN CASE O F DEFAULT OR BREACH COMMITTED BY '' CONSIGNEE IN RESPECT OF ANY TERMS OF THIS AGREEMENT. THE CONSIGNEE MAY A LSO -: 13: - 13 TERMINATE THIS AGREEMENT AFTER GIVING ONE MONTHS NOTICE TO THE PRINCIPAL SHOULD THE PRINCIPAL FAIL T O COMPLY WITH OR COMMIT A BREACH OF TERMS OF THIS AGREEMENT. THE CONSIGNEE SHALL ALWAYS CARRY OUT PRINCIPAL'S INSTRUCTION UP TO THE FULL SATISFACTION OF THE PRINCIPAL FAILING WHICH THE AGREEMENT SHALL BE TERMINATED BY THE PRINCIPAL BY GIVING A FORTNIGHT NOTICE. THE AGREEMENT IF NOT RENEWED SHALL CONTINUE TO BE OPERATIVE ON THE SAME TERMS AND CONDITIONS BY ANY OF PARTIES GIVING 2 MONTHS NOTICE IN WRITING TILL SUCH TIME FRESH AGREEMENT IS SIGNED. ' ON GOING THROUGH CLAUSE 4 OF THE AGREEMENT THE AO OBSERVED THAT THE COMMISSION ON SALES IS PAYABLE ONLY TO M/S GHANSHYAMDAS & CO. AND NOT TO M/S SANGAM TEA CENTER. THE ASSESSEE HAS NOT FURNISHED ANY OTHER AGREEMENT FOR SHOWING THAT THE COMMISSION IS TO BE RECEIVED BY M/S SANGAM TEA CENTER. IN VIEW OF THE FACTS DISCUSSED IN PRECEDING -: 14: - 14 PARAS THE AO HELD THAT THE 2% COMMISSION IS PAYABLE TO M/S SANGAM TEA CENTER. ON GOING THROUGH CLAUSE 16 OF THE AGREEMENT IT IS CLEAR THAT SINCE THE AGREEMENT IS NOT RENEWED TILL DATE OF THIS ASSESSMENT ORDER THEREFORE IN VIEW OF THE PROVISION MADE IN CLAUSE 16 THE AGREEMENT SHALL CONTINUE TO BE IN OPERATION ON THE SAME TERMS AND CONDITIONS FOR THE SUBSEQUENT FINANCIAL YEARS ALSO RELEVANT TO A Y 2004-05 2005-06 2006-07 AND 2007- 08. IN VIEW OF THE ABOVE FACTS THE AO HELD THAT COMMISSION @ 2% ON SALES OF GOODRICK TEA SHALL BE PAYABLE TO THE ASSESSEE AND ACCORDINGLY THE SAME IS LIABLE TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS MAINTAINED QUANTITATIVE DETAILS OF -: 15: - 15 PURCHASES BUT THE SAME ARE NOT MAINTAINED QUALITY WISE OR BRAND WISE. THE RATE OF TEA PURCHASED FROM M/S GOODRICK GROUP LTD. IS THE COSTLIEST AND RANDING FROM RS. 107/ RS. 109/ RS. 140/ AND RS. 145/. THUS THE AVERAGE RATE OF THE TEA PURCHASED IS RS. 125.25 PER KG. THE ASSESSEE HAS PURCHASED TOTAL 2069136 KG OF GOODRICK TEA. APPLYING THE ABOVE RATE PER KG THE TOTAL ADDITION ON THIS ACCOUNT WAS WORKED OUT BY AO AT RS. 51 83 185/- (2069136 X 125.25 X 2%). 7. BY THE IMPUGNED ORDER THE LD. CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF COMMISSION AFTER HAVING FOLLOWING OBSERVATIONS :- THE ISSUE IS CONSIDERED. THE RELEVANT COPY OF THE AGREEMENT FILED BY THE ASSESSEE AND RELIED UPON BY THE AO FOR MAKING THIS -: 16: - 16 ADDITION HAS ALSO BEEN EXAMINED. FURTHER IT IS NOTED THAT THE ASSESSEE CLAIMED OF TRADING OF TEA OF GOODRICK BRAND AND HENCE THE PROFIT EARNED THEREON HAS BEEN DECLARED IN THE INCOME FOR THE YEAR UNDER CONSIDERATION AND HENCE THE ADDITION MADE BY THE AO ON ESTIMATING THE COMMISSION WHICH WOULD HAVE BEEN EARNED BY THE ASSESSEE ON SALE OF TEA OF GOODRICK BRAND IS NOT LOGICAL AND THAT AMOUNTS TO DOUBLE ADDITION ONE IN THE FORM OF PROFIT ON TRADING OF TEA OF 'GOODRICK' BRAND EARNED AND DECLARED AND ANOTHER ADDITION OF THE ESTIMATED COMMISSION MADE BY THE AO. IT IS ALSO WORTH MENTIONING THAT THE COMMISSION EARNED ON SALE OF TEA OF GOODRICK BRAND WAS DECLARED BY M/S. SANGAM TEA CENTRE WHICH WAS ALSO ACCEPTED BY THE DEPARTMENT. THIS FACT HAS BEEN ACKNOWLEDGED BY THE ASSESSING OFFICER IN HIS REMAND REPORT AND ALSO IN THE -: 17: - 17 ASSESSMENT OF THE NEXT YEAR OF THE ASSESSEE MADE BY JCIT RANGE 4 INDORE. IN VIEW OF THE FACTS DISCUSSED ABOVE THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT CANNOT BE SUSTAINED AND IS HEREBY DELETED. 8. WITH REGARD TO THE ADDITION MADE ON ACCOUNT OF COMMISSION ALLEGED TO BE EARNED FORM M/S. GOODRICKE GROUP LIMITED WE FOUND THAT THE ASSESSEE COMPANY OPERATE D AS A WHOLESALER OF TEA IN M.P. AND CHHATTISGARH AND IS S ELLING GOODRICK BRAND OF TEA AND CAMEL BRAND OF TEA. G OODRICK TEA WAS PURCHASED FROM SANGAM TEA CENTRE WHEREAS CA MEL IS THE ASSESSEES OWN BRAND. FOR CHHATISGARH REGION T HE ASSESSEE FIRM IS THE CONSIGNEE AGENT OF M/S. GOODRI CK GROUP LTD. KOLKATA .. AS PER THE REMAND REPORT DATED 12.2.2008 THE AO HAS COMMENTED THAT THE COMMISSION FROM GOODRICK GROUP LTD. KOLKATTA HAS ALREADY BEEN SHOWN IN THE RETURN OF INCOME FILED BY M/S. GHANSHYAMDAS & CO.(FOR CHHATISGARH RE GION) AND M/S. SANGAM TEA CENTRE (FOR M.P. REGION). THUS THE ADDITION MADE ON ACCOUNT OF ESTIMATION OF COMMISSIO N INCOME -: 18: - 18 IN THE HANDS OF THE ASSESSEE FIRM WAS NOT JUSTIFIED . WE ALSO FOUND THAT THE ASSESSEES CASE FOR AY 05-06 HAS BEE N COMPLETED IN THE MONTH OF DECEMBER 2007 BY THE JCIT RANGE- 4 INDORE AND AFTER ALL SCRUTINY & VERIFICATIONS N O SUCH ADDITION/ESTIMATIONS HAVE BEEN MADE IN THE HANDS OF ASSESSEE FIRM ON ACCOUNT OF ANY COMMISSION INCOME FROM GOODR ICKE GROUP. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) FOR DELETING ADDITION ON ACCOUNT OF A LLEGED COMMISSION WHICH NEITHER ACCRUED NOR RECEIVED BY T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THE COURSE OF ASSESSMENT ADDITION OF RS. 2 31 62 543/- WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES INCURRED ON GIFTS TO ITS CUSTOMERS. THE CIT(A) DELETED THE SAME. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE ASSESSEE INCURRED EXPENSES ON PURCHASE OF VARIOUS GIFTS AS PER THE SCHEME CARRIED OUT TO E NCOURAGE THE SALE OF ITS PRODUCTS. A SUM OF RS. 3 55 00 467/- WA S REIMBURSED PARTLY BY THE GOODRICK INDIA LIMITED AND BY THE VARIOUS DISTRIBUTORS. THE ASSESSEE FINALLY CLAIMED A SUM OF RS. -: 19: - 19 1 71 14 9602/- ON THIS ACCOUNT. THE AO HOWEVER MADE AN ADDITION OF RS. 2 31 62 543/-. THE ASSESSEE AS SUCH CHALLENGED THE ADDITION MADE BY THE ASSESSING OFFIC ER ON THIS ACCOUNT AT RS. 2 31 62 543/- AS AGAINST THE EXPENSE S CLAIMED ON THIS ACCOUNT WAS RS. 1 71 14 972/-. THE PLEA OF THE ASSESSEE WAS CORRECT AS DISALLOWANCE CANNOT BE MORE THAN THE EXPENSES CLAIMED ON THAT ACCOUNT. ACCORDINGLY WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN DIRECTING T HE AO TO CONSIDER FOR DISALLOWANCE THE NET EXPENDITURE CLAIM ED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. 11. WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRE D ON DISTRIBUTION OF GOLD COINS WE FOUND THAT IN THE REMAND REPORT THE AO HAS CONFIRMED RECEIPT OF GOLD COINS BY ALL THE PARTIES EXCEPT M/S. RAMESH KUMAR BABULAL DAMOH . T HE LD. CIT(A) DELETED THE ADDITION EXCEPT IN RESPECT OF GO LD COINS GIVEN TO M/S. RAMESH KUMAR BABULAL. BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT DUE TO DISPUTE W ITH THE SAID PARTY NO CONFIRMATION WAS SENT BY IT. WE FOUN D THAT NO WHERE PURCHASES OF GOLD COINS AND INCURRING OF EXPE NDITURE IS -: 20: - 20 UNDER DOUBT MERELY BECAUSE THE PARTY WHO HAS RECE IVED THE GOLD COINS UNDER SALES PROMOTION SCHEME DID NOT FUR NISH THE CONFIRMATION DUE TO THE DISPUTE EXISTING BETWEEN TH E PARTIES THE SAME CANNOT BE DISALLOWED LIGHT HEARTEDLY. FOR THIS PURPOSE THE AO IS REQUIRED TO VERIFY THE SALE TRAN SACTION TO THESE PARTIES TO ASCERTAIN WHETHER THE GOLD COINS G IVEN TO THIS PARTY WAS AS PER THE SALES EFFECTED TO THIS PARTY A ND IF THE AO FOUND THAT IN TERMS OF SCHEME THE ASSESSEE HAS ALS O UNDERTAKEN REQUIRED SALES TO THIS PARTY AND ACCOUNT ED FOR INCOME ON ACCOUNT OF SUCH SALES THE CORRESPONDING EXPENDITURE INCURRED FOR GIVING THE GOLD COINS AS P ER SCHEME CANNOT BE DISALLOWED. IN THE INTEREST OF JUSTICE W E MODIFY THE ORDER OF CIT(A) AND RESTORE THE ISSUE WITH REGARD T O DISALLOWANCE OF EXPENSES OF GOLD COINS ATTRIBUTABLE TO M/S. RAMESH KUMAR BABULAL TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. WE DIRECT ACCORDIN GLY. 12. WITH REGARD TO ADDITION ON ACCOUNT OF DISTRIBUTIO N OF SALE OF PRODUCTS AMOUNTING TO RS. 20 LAKHS WE FOUN D THAT THE ASSESSEE HAD CLAIMED PURCHASE OF PRODUCT OF CELLO W ORLD FOR RS.20 LAKHS FOR DISTRIBUTION AS PER THE SCHEME LAUN CHED -: 21: - 21 DURING THE YEAR. THE AO DISALLOWED THIS CLAIM OF EX PENDITURE ON THE GROUND THAT NO RECORD COULD BE PRODUCED BY T HE ASSESSEE FOR DISTRIBUTION OF CELLO PRODUCTS AND STO CK LEFT . HOWEVER WE FOUND THAT NO EXPENDITURE ON THIS ACCOUNT WAS CLAIMED IN THE BOOKS OF ACCOUNTS AND THE SAME WAS REIMBURSED BY GOODRICK INDIA LIMITED TO THE ASSESSE E FIRM AND HENCE NO ADDITION IS CALLED FOR ON THIS ACCOUNT IN THE HANDS OF THE ASSESSEE FIRM. ACCORDINGLY CIT(A) WAS JUSTIFIED IN HIS ACTION FOR DELETING DISALLOWANCE I N THE HANDS OF THE ASSESSEE FIRM. 13. THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 89 20 000/- ON DISTRIBUTION OF GOLD COINS TO ITS CU STOMERS SAME WAS DISALLOWED BY THE ASSESSING OFFICER AFTER HAVING THE FOLLOWING OBSERVATIONS :- ' THE SCHEME OF GOLD COINS IS AGAIN A MATTER OF SURPRISE AT THIS JUNCTURE. THE SCHEME IS CLAIMED AS THAT OF GOODRICK ON THE OTHER HAND THERE IS NO TRAC E OF ANY REIMBURSEMENT FROM THE SAID COMPANY ON THIS COUNT OR FOR THAT MATTER FROM THE CONSIGNEE -: 22: - 22 AGENT. THE ASSESSEE CLAIMED PURCHASE OF BULLION TO THE EXTENT OF RS. 89 20 000/- ON THE DATES RANGING FROM 12.3.2004 TO 30.3.2004 SURPRISINGLY DELIVERED AT AHMEDABAD. THIS BULLION HAS BEEN PURCHASED FROM RAVI BULLION INDORE HAVING A BRANCH AT AHMEDABAD. IT IS NOT INTELLIGIBLE AS TO HOW THE ASSESSEE COULD GET THE BULLION CONVERTED INTO COINS AFTER RECEIVING THE SAME AT AHMEDABAD ON THE ABOVE DATES AND FINALLY DISBURSE THE ENTIRE LOT TO ALL NOOKS AND CORNERS OF MADHYA PRADESH AND CHHATTISGARH. IT IS HUMANLY NOT POSSIBLE FOR EVERY DEALER TO COLLECT THE COINS AT THE LAST DAY OF THE FINANCIAL YEAR FROM THE DOORSTEP OF THE ASSESSEE AN D IT IS NEXT TO IMPOSSIBLE THAT THE ASSESSEES REPRESENTATIVE COULD RUSH TO ALL PARTS OF THE STATE ON THE LAST DAY OF THE YEAR AND DISBURSE THE ITEMS ON THE SAME DAY. IT MAY BE POINTED OUT THAT THE DISTANCE RANGE FROM FEW KILOMETERS TO MORE THAN 1000 KM. BY NO MODE SUCH JOURNEY IS POSSIBLE IN A SHORT PERIOD. THE ASSESSEE HAS NOT PRODUCED A -: 23: - 23 SINGLE EVIDENCE TO SHOW THAT HOW THE EITHER BULLION OR COINS WERE TRANSPORTED FROM AHMEDABAD TO INDORE. ABOVE ALL THERE IS NO EVIDENCE OF DISBURSEMENT OF GOLD COINS WHICH WAS REQUISITIONED REPEATEDLY ON DIFFERENCE DATE SO HEARING DURING ASSESSMENT PROCEEDINGS. THUS THE STORY OF DISBURSEMENT OF GOLD COINS HAS TURNED OUT TO BE A CONCOCTED ONE HENCE THE SAME IS BRUSHED ASIDE. 6. WITHOUT PREJUDICE TO THE ABOVE ANOTHER ASPECT IN THE ABOVE CONTEXT IS THE RE CEIPT PART. THERE IS NO TRACE OF ANY RECEIPT UNDER THE ABOVE HEAD FROM GOODRICK EXCEPT THE SURPLUS OF RS. 36 19 469/- LEFT FROM OUT OF RS. 85 37 149/- WORTH CREDIT NOTE REFER RED IN THE PRECEDING PARAS. IF THE EXPENDITURE IS THE L IABILITY OF THE COMPANY THE ENTIRE EXPENDITURE SHOULD BE DEBITED TO THE SAID COMPANY BUT NOTHING OF THIS SOR T HAS BEEN DONE BY THE ASSESSEE C ASTING UNDUE CHARGE ON ASSESSEE'S P&L ACCOUNT. THEORY OF PROBABILITY CLEARLY SUGGEST THAT THERE IS NO -: 24: - 24 RELIABILITY AS REGARDS DISBURSEMENT FROM THE ANGLE OF TIME FACTOR MECHANICAL PROCESS OF CONVERSION OF BULLION INTO COINS AND ABOVE ALL BUSINESS VIABILITY PER PRUDENT BUSINESSMEN ATTITUDE. I HAVE ANALYZED THE TRADING PART ASSOCIATED WITH THE SCHEME AS CLAIMED. THE SCHEME WAS LAUNCHED FOR A LIMITED PERIOD OF NOVEMBER AND DECEMBER 2003. ANALYSIS OF THE TRADE FOR THIS PERIOD INDICATE THE COST OF GOODRICKE PRODUCT PER KG AT RS. 130/- TO RS. 132/- AS AGAINST WHICH SALE PRICE WORKS OUT TO JUST RS. 2/- TO RS. 3/- PER KG ABOVE THE COST OF PURCHASE. THUS THE PROFIT ON 24 KG. PACK WILL BE HARDLY RS. 50/- TO RS. 60/- WITH A FURTHER CHARGE OF ADMINISTRATIVE EXPENDITURE THEREON. NO PRUDENT BUSINESSMAN WILL AFFORD TO INCUR A LOSS OF MORE THAN RS. 550/- BY WAY OF DISBURSEMENT OF A GOLD COINS WORTH RS. 600/- ON THE ABOVE PIECE OF TRADE. IN THIS CONNECTION THE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION. ACCORDINGLY SINCE THE ASSESSEE HAS NO T -: 25: - 25 PRODUCED ANY DOCUMENTARY EVIDENCE EITHER REGARDING TRANSPORTATION OF BULLION I COINS NOR HAS PRODUCED ANY EVIDENCE TO SHOW THAT IT HAS DISTRIBUTED THE GOL D COINS AS PER THE SCHEME I AM LEFT WITH NO ALTERNATI VE EXCEPT TO CONSIDER THAT NO SUCH EXPENDITURE WAS INCURRED IN THIS ACCOUNT FOR THE PURPOSES OF BUSINE SS THE EXPENDITURE IS NOT ACCEPTABLE IN THE LIGHT OF OBSERVATION MADE IN THE PRECEDING PARAS. AS SUCH THE EXPENDITURE BOOKED UNDER THE ABOVE HEAD IS DISALLOWED AS UNDER: EXPENDITURE ON PURCHASE OF BULLION RS.89 20 000 /- ADD: MAKING CHARGES RS. 45 000/- TOTAL RS.89 65 000/- 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FIND FROM RECORD THAT T HE ASSESSEE HAD ALSO INCURRED EXPENDITURE OF RS. 89 20 000/ - ON DISTRIBUTION OF GOLD COINS TO THE DISTRIBUTORS AS PER THE SCHEME. THE BULLION WAS PURCHASED FROM -: 26: - 26 AHMEDABAD AND THE GOLD COINS WAS GOT CONVERTED AT INDORE. THE AO THEREFORE RAISED DOUBT THAT HOW THE ASSESSEE COULD GET THE BULLION CONVERTED INTO COINS AFTER RECEIVING THE SAME AT AHMEDABAD. SINCE THE BULLION WAS PURCHASED AND WAS GOT CONVERTED INTO GOLD COINS BETWEEN 12.3.04 TO 30.3.04 AND HENCE IT WAS IMPOSSIBLE FOR EVERY DEALER TO GET THE COINS ON THE LAST DAY OF THE FINANCIAL YEAR FROM THE ASSESSEE. IT WAS ALSO NOT POSSIBLE TO DISTRIBUTE THE GOLD COINS EVEN BY THE REPRESENTATIVE OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT NOTHING WAS REIMBURSED BY THE GOODRICK CO. THOUGH THE ENTIRE EXPENDITURE SHOULD BE DEBITED TO THE SAID COMPANY. THE AO FURTHER WORKED OUT THE VIABILITY OF DISTRIBUTION OF GOLD COINS IN PARA 7 OF HIS ORDER AND FINALLY DISALLOWED THE ENTIRE EXPENDITURE OF RS.89 65 000/- CLAIMED ON THIS ACCOUNT. 15. AS THE ASSESSEE DID NOT GET FULL OPPORTUNITY TO SUBSTANTIATE ITS CLAIM HE CALLED A REMAND REPORT F ORM THE AO. -: 27: - 27 THE REMAND REPORT OF THE AO WITH REFERENCE TO THIS ISSUE HAS CONFIRMED ALL THE PARTIES EXCEPT ONE NAMELY RAMESH KUMAR BABULAL DAMOH HAS CONFIRMED RECEIPT OF GOLD COINS AGGREGATING 13837 COINS. THE CIT(A) CALLED FOR THE COUNTER COMMENTS FROM THE ASSESSEE WHICH ARE AS UNDER :- THE ASSESSING OFFICER HAS ISSUED NOTICES U/S 133(6) OF THE I.T. ACT 1961 AND ALMOST ALL THE PARTIES TO WHOM THE NOTICES HAVE BEEN ISSUED HAVE CONFIRMED THE RECEIPT OF THE SALES PROMOTION ITEMS EXCEPT THE PARTY MENTIONED AT S.NO. 1 ON PAGE 3 OF THE REMAND REPORT (RAMESH KUMAR BABULAL DAMOH) TO WHOM 109 COINS HAVE BEEN GIVEN. CONFIRMATION IN THE SAID CASE COULD NOT BE RECEIVED BECAUSE THERE IS A DISPUTE GOING ON WITH THE SAID PARTY REGARDING RECOVERY OF AMOUNT FOR WHICH SUIT HAS BEEN FILED IN THE COURT IN DAMOH. NECESSARY EVIDENCES IN THIS MATTER ARE ENCLOSED HEREWITH. THUS IN THE CIRCUMSTANCES WHEN ALL THE OTHER PARTIES HAVE CONFIRMED THE SIMILAR -: 28: - 28 TRANSACTIONS . THIS MAY ALSO BE TREATED AS CONFIRMED. 4.3.3.4 THE AO MAINLY DISALLOWED THE EXPENDITURE CLAIMED ON PURCHASE OF BULLION AND TO GET THEM CONV ERTED INTO GOLD COINS FOR DISTRIBUTION AMONG THE DISTRIBU TORS AS PER THE SCHEME ON THE FOLLOWING GROUNDS: A. THE ENTIRE EXPENSES SHOULD HAVE BEEN BORNE BY M/S. GOODRICK LTD.. B. NO JUSTIFICATION TO PURCHASE THE BULLION FROM AHMEDABAD ;AND C. IT WAS NOT FEASIBLE TO DISTRIBUTE THE SAME IN THE YEAR ITSELF. 16. AFTER CONSIDERING THE REMAND REPORT AND ASSESSEES COMMENTS THEREON THE CIT(A) RESTRICTED THE DISALLO WANCE TO THE EXTENT OF RS. 6 LAKHS. FOLLOWING WAS HIS OBSERV ATION :- THE ISSUE IS CONSIDERED. IN VIEW OF THE FACT THAT DISTRIBUTION OF GOLD COIN WAS CONFIRMED BY THE DISTRIBUTOR IN RESPONSE TO NOTICE ISSUED BY THE AO U/S. 133(6 ) OF THE ACT EXCEPT IN ONE CASE FOR WHICH THE ASSESSEE SUBMITTED THAT DUE TO DISPUTE GOING ON WITH THAT PARTY IN THE CIVIL COURT FOR RECOVERY OF -: 29: - 29 AMOUNT AND HENCE THAT PARTY DID NOT RESPOND TO THE LETTER OF THE AO AND ALSO ENCLOSED RELEVANT PAPERS IN SUPPORT OF THIS CONTENTION. THE ADDITION MADE BY THE AO ON THIS ACCOUNT CANNOT BE SUSTAINED IN ITS ENTIRETY BECAUSE NEITHER THE FACTUM OF ACQUISITION OF GOLD COINS IN PURSUANCE TO THE SCHEME PLOTTED BY THE ASSESSEE CAN BE DISPUTED NOR THE DISTRIBUTION OF THE SAME. THE ASSESSEE AS PER PAPER BOOK ON PAGE 263 AND 264 HAS FURNISHED DETAILS OF DISTRIBUTION OF GOLD COINS NUMBERING 14964 COINS. HOWEVER THE AO IN HIS REMAND REPORT HAS REFERRED TO C ONFIRMATION TO THE EXTENT OF 13 837 COINS ONLY. FURTHER AS PER BILLS FOR PURCHASE OF GOLD COINS APPEARING IN PAPER BOOK AS 250-252 THE ASSESSEE PURCHASED GOLD WEIGHING 5 KG @ RS. 588/- OTHER 5 KG @ RS. 590/- AND ANOTHER 5 KG @ RS. 606/- PER GM . THUS AGAINST TOTAL PURCHASE OF 15 KG OF GOLD THE GOLD COINS OF 1 GM WOULD BE 15 000 COINS -: 30: - 30 AGAINST WHICH THE AO HAS REPORTED CONFIRMATION ABOUT THE DISTRIBUTION TO THE EXTENT OF 13837 AGAINST 14 964 CLAIMED TO BE DISTRIBUTION BY THE ASSESSEE (PAPER BOOK PAGE 263-264). HENCE ON OVERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE'S CLAIM IS ALLOWED TO THE EXTENT OF DISTRIBUTION OF GOLD COINS FOR 14 KG OF GOLD WITH MAKING CHARGES AND DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS.6 LAKHS. 17. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE REMAND REPORT SENT BY THE ASSESSING OFFICER AND ASSESSEES COMMENTS THEREON. 18. WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRED ON DISTRIBUTION OF GOLD COINS WE FOUND THAT IN THE REMAND REPORT THE AO HAS CONFIRMED RECEIPT OF GOLD COINS BY ALL THE PARTIES EXCEPT M/S. RAMESH KUMAR BABULAL DAMOH . T HE LD. CIT(A) DELETED THE ADDITION EXCEPT IN RESPECT OF GO LD COINS GIVEN TO M/S. RAMESH KUMAR BABULAL. BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. CONTENTION OF THE LD. -: 31: - 31 AUTHORIZED REPRESENTATIVE WAS THAT DUE TO DISPUTE W ITH THE SAID PARTY NO CONFIRMATION WAS SENT BY IT. WE FOUN D THAT NO WHERE PURCHASES OF GOLD COINS AND INCURRING OF EXPE NDITURE IS UNDER DOUBT MERELY BECAUSE THE PARTY WHO HAS RECE IVED THE GOLD COINS UNDER SALES PROMOTION SCHEME DID NOT FUR NISH THE CONFIRMATION DUE TO THE DISPUTE EXISTING BETWEEN TH E PARTIES THE SAME CANNOT BE DISALLOWED LIGHT HEARTEDLY. FOR THIS PURPOSE THE AO IS REQUIRED TO VERIFY THE SALE TRAN SACTION TO THESE PARTIES TO ASCERTAIN WHETHER THE GOLD COINS G IVEN TO THIS PARTY WAS AS PER THE SALES EFFECTED TO THIS PARTY A ND IF THE AO FOUND THAT IN TERMS OF SCHEME THE ASSESSEE HAS ALS O UNDERTAKEN REQUIRED SALES TO THIS PARTY AND ACCOUNT ED FOR INCOME ON ACCOUNT OF SUCH SALES THE CORRESPONDING EXPENDITURE INCURRED FOR GIVING THE GOLD COINS AS P ER SCHEME CANNOT BE DISALLOWED. IN THE INTEREST OF JUSTICE W E MODIFY THE ORDER OF CIT(A) AND RESTORE THE ISSUE WITH REGARD T O DISALLOWANCE OF EXPENSES OF GOLD COINS ATTRIBUTABLE TO M/S. RAMESH KUMAR BABULAL TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. WE DIRECT ACCORDIN GLY. -: 32: - 32 19. 4.3.4. NEXT ISSUE TO BE CONSIDERED OUT OF DISALLOWANCE OF SALES PROMOTION EXPENSES MADE BY AO IS THE CLAIM OF EXPENSES ON DISTRIBUTION OF GLASSWARE. THE ASSESSEE HAS ACQUIRED GLASSWARE FROM TWO PARTIES WHICH ARE AS UNDER: M/S. MAHAVEER & CO RS. 78 73 842 M/S. KAMINI IND. RS. 43 23 701 RS .L 21 97 543 20. THE ASSESSEE AS PER DETAILS SUBMITTED REGARDING REIMBURSEMENT OF SALES PROMOTION EXPENSES HAD GOT REIMBURSEMENT OF PART OF EXPENSES AND THE NET CLAIM ON THIS COUNT AFTER CONSIDERING THE REIMBURSEMENT AMOUNTED TO RS. 81 49 972. 21. ASSESSEES SUBMISSION ON THIS ISSUE BEFORE THE CIT(A) WAS AS UNDER: THE SCHEME OF GLASS ITEMS WAS LAUNCHED WHEREBY THE CUSTOMERS WERE TO BE GIVEN GLASS ITEMS AS PER THE QUANTITY OF TEA PURCHASED BY THEM. THE RELEVANT SCHEME IS GIVEN AT PB- . THE LD. A.O -: 33: - 33 DOUBTED THE PURCHASE OF GLASS ITEMS PURCHASED FROM TWO CONCERNS ;_ A) M/S MAHAVIR & CO. 78 73 842/- B) M/S KAMINI INDUSTRIES 43 23 701/- THE LD. A.O THEREFORE DISALLOWED THE SAID PURCHASES AMOUNTING TO RS.1 21 97 543/-. THE TOTAL AMOUNT EXPENDED FOR PURCHASE OF GLASSWARE WAS RS.2 62 70 310/- AND ON THE OTHER HAND RS. 2 69 63 318/- WAS RECOVERED/REIMBURSED FROM/BY M/S GOODRICK GROUP LIMITED AND OTHER DEALERS. THUS THERE CAN BE NO DISALLOWANCE UNDER THIS HEAD AND THE ADDITION MADE THUS DESERVES TO BE DELETED. ON MERITS THE LD. A.O DISALLOWED THE SAME ON THE FOLLOWING GROUNDS : A) THE BURDEN OF THIS EXPENDITURE SHOULD GO TO GOODRICKE AND NOT ON THE ASSESSEE. THE LD. A.O HAS -: 34: - 34 ON PAGE 5 IN POINT 4 AT SECOND LINE STATED AS FOLLOWS:- THE SCHEME IS CLAIMED AS THAT OF GOODRICKE. ON THE OTHER HAND THERE IS NO TRACE OF ANY REIMBURSEMENT FROM THE SAID COMPANY ON THIS COUNT OR FOR THAT MATTER FROM THE CONSIGNEE AGENT. THE ASSESSEE SUBMITS THAT THESE FINDINGS OF THE LD. A.O ARE BASELESS AND SEEMS TO BE BASED MERELY ON BIAS T HAT THE ASSESSEE IS A CONSIGNEE AGENT OF M/S GOODRICKE GROUP GETTING COMMISSION. THE LD. A.O DID NOT LOOK INTO T HE ASPECT THAT THE ASSESSEE IS A DISTRIBUTOR OF TEA AND BEARS THE RISK & RETURN OF THE BUSINESS. THE ASSESSEE HIMSELF ALSO DEALS IN ITS OWN BRAND. PROMOTION OF SALES AR E THEREFORE IMPORTANT FOR THE ASSESSEE. B) THE LD.A.O ON PAGE 6 PARA 8 HAS DISCUSSED THE REASONS FOR DISALLOWING THE EXPENDITURE RELATING TO GLASSWA RE. THE LD.A.O. STATES THAT THE LETTERS SENT TO THE TWO PAR TIES WERE -: 35: - 35 RETURNED BACK AND THE TWO PARTIES TURNED TO BE NON- ENTITY. THE ASSESSEE COULD NOT THEREFORE PROVE THE EXPENDIT URE. THE BILLS FOR THE PURCHASES ARE PLACED AT PB 266-293. BOTH THE PARTIES ARE REGISTERED WITH THE SALES TAX DEPARTMENT. THE SALES TAX REGISTRATION NOS. ARE :- FD 153517 DTD. 12/08/1998 FD 0171855 DTD. 19/01/2003 THE PAYMENTS TO THOSE PARTIES HAVE BEEN MADE THROUG H ACCOUNT PAYEE DEMAND DRAFTS AND THUS THERE EXISTS N O DOUBT THAT THESE PARTIES WERE IN EXISTENCE WHEN THE ASSESSEE MADE PURCHASES. THE A. O. HIMSELF INQUIRED FROM BANK WHEREOF IT WAS INFORMED THAT THE PAYMENT WAS M ADE THROUGH DEMAND DRAFTS IN THEIR ACCOUNTS. THE A.O. D ID NOT BRING THIS EVIDENCE ON RECORD IN THE ASSESSMENT ORD ER. SIMPLY BECAUSE THE PARTIES TURNED HOSTILE NO ADDIT ION COULD BE MADE IN THE HANDS OF THE ASSESSEE. THE AO DID NOT ASK THE CONCERNED AO AT FIROZABAD TO CONDUCT INQUIRY IN THEIR CASE. RELIANCE WAS PLACED I N THE CASE OF SMT. BHAVNA THANAWALA V/S ITO (2007)15 SOT 377 (MUM) -: 36: - 36 WHEREIN IT WAS HELD THAT THE ONUS TO PROVE PURCHASE S AS BOGUS IS ON A.O. ONCE THE ASSESSEE HAS DISCHARGED I TS BURDEN NON-FURNISHING OF CONFIRMATION S IMPLY BECAUSE THE SAID CONCERN WAS NOT FOUND AVAILABLE AT THE GIVEN A DDRESS A.O IS NOT ENTITLED TO TREAT PURCHASES AS BOGUS WHEN PAYMENT IS MADE BY ACCOUNT PAYEE CHEQUE AND PARTY IS REGISTERED WITH SALES TAX DEPARTMEN T . C) THE LD. A.O. DOUBTED THE TRANSPORTATION OF GOODS TO THE ASSESSEE. IN RESPECT OF THE TRANSPORTATION THE BILLS ITSELF MENTION THE DETAILS OF DELIVERY OF GOODS. THE GOODS WERE RECEIV ED ON F.O.R.BASIS. THE TRUCK NO.IS MENTIONED. SINCE THE A SSESSEE WAS NOT REQUIRED TO PAY ANY CHARGES THE ASSESSEE WAS NOT REQUIRED TO PAY ANY TRANSPORTATION. THE TERMS AND CONDITIONS OF DELIVERY VARY FROM PARTY TO PARTY AND DOES NOT REMAIN THE SAME FOR ALL THE PARTIES. THE OTHER PARTIES AT FIRO ZABAD WERE REQUIRING THE ASSESSEE TO PAY THE FREIGHT AND THUS THE ASSESSEE NEGOTIATED THAT THE TRANSPORTATION BE PAID BY THEM. THUS THE TRANSPORTATION WAS PAID BY THEM. SINCE THE PARTY HAS STOPPED DOING BUSINESS SUBSEQUENTLY OUT OF ITS OWN -: 37: - 37 REASON NO ADDITION CAN BE MADE ON ASSESSEE WHO MAD E GENUINE PURCHASES AND DISTRIBUTED THE SAME TO THE DEALERS. THE SUBSEQUENT DELIVERY OF GOODS TO THE DEALERS ITSELF GOES TO PROVE THE VERY FACT THAT THE GOODS WERE RECEIVED BY THE ASSESSEE. D) THE LD A.O. FURTHER DOUBTED THE DISBURSEMENT OF THE GLASS ITEMS TO THE DEALERS. AS ALREADY STATED THE GLASS ITEMS WERE TO BE DELIVERED AS PER THE SCHEME. DURING ASSESSMENT PROCEEDINGS ALL THE BOOKS ALONG WITH VOUCHERS THE VARIOUS SALE BILLS INDICAT ED THE ELIGIBILITY OF GLASS ITEMS TO THE DEALERS WERE PRODUCED BEFORE THE A.O.THE LD AO HOWEVER REQUIRED THE ASSESSEE TO ESTABLISH THE DELIVERY OF THE GLASS ITEMS TO THE DEALERS. THE ASSESSEE FURNISHED PARTY WISE LIST OF THE GLASS ITEMS DELIVE RED. HOWEVER SINCE THE GLASS ITEMS WERE DELIVERED AT THE COST OF DEALERS AND NOT AT THE COST OF THE ASSESSEE COMPILATION OF BIL LWISE DELIVERY ALONG WITH LRS WOULD HAVE REQUIRED TIME FOR WHICH THE LD. AO DENIED AND SINCE THE DETAILS WERE TIME CONSUMING D ETAILS FOR ONE MONTH HAVE BEEN FILED (PB 312 - 415). DETAILS F OR THE REMAINING PERIOD WOULD BE FURNISHED IF YOUR HONOUR SO DESIRES. -: 38: - 38 HOWEVER THE PARTWISE DETAILS FOR THE COMPLETE YEAR HAS BEEN PREPARED AND FILED AT PB 416-541. THE PARTIES TO WHOM THE GOODS WERE DELIVERED HAVE ALSO CONFIRMED THAT THE G OODS WERE DELIVERED TO THEM. CONFIRMATION OF SOME OF THE PARTIES IS FILED ON RECORD (PB 123 TO 194) E) THE LD. AO STATED THAT THE LAST INVOICE/JOURNAL ENT RY OF THE ABOVE PARTIES IS DTD. 31/03/2004. THE ASSESSEE SUBMITS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER THIS SYSTEM THE LIABILITY IS BOOKED AS AND WHEN ACCRUED. THE LIABIL ITY TO DELIVER GLASS ITEMS ACCRUES AS AND WHEN THE TEA IS INVOICED AND THE ELIGIBILITY OF DEALERS ARISES. THE RECEIPT OF GLASS ITEMS AND THE DELIVERY OF THE SAME IS FOR DISCHARGE OF TH E LIABLITY. IT IS SUBMITTED THAT ONLY AN AMOUNT OF RS. 4 90 778/- OF M/S MAHAVEER & CO. (PB 265) AND OF RS. 458946/- OF M/S KAMINI INDUSTRIES (PB 282) WAS ACCOUNTED FOR ON 31/03/2004. THE GOODS RECEIVED ON 31/03/2004 MAY HA VE BEEN DELIVERED SUBSEQUENTLY. THE SAME WAS TREATED A S EXPENDITURE AND NOT AS LIABILITY BECAUSE THE LIABIL ITY HAD ALREADY ACCRUED WHEN THE TEA WAS SOLD. IT WAS ONLY THE -: 39: - 39 EXECUTION OF THE EXISTING LIABILITY SINCE THE EXPEN DITURE WAS INCURRED AND THUS THE SAME IS TO BE ALLOWED UNDER MERCANTILE SYSTEM OF ACCOUNTING. IN THE CASE OF ADD L. CIT VIS RAJASTHAN SPINNING & WEAVING MILLS LTD. (2004) 137 TAXMAN 367 (RAJ.) THOUGH RELATED TO CONTRIBUTION MADE TO A FUND BUT IN PRINCIPLE IT HAS BEEN HELD THAT IF THE EXPENSE IS MOTIVATED BY HIS OWN INTEREST AND THERE IS NEXUS BE TWEEN THE EXPENSES INCURRED AND HIS BUSINESS INTEREST HE HAS SPENT THE MONEY FOR HIS OWN BUSINESS EXCLUSIVELY & WHOLLY. IT WAS FURTHER HELD THAT IT IS WELL ESTABLISHED THA T ANY CONTRIBUTION MADE BY THE ASSESSEE WHICH IS DIRECTLY CONNECTED OR RELATED WITH THE CARRYING ON OF THE ASSESSEE'S BUSINESS OR WHICH RESULTS IN BENEFIT TO THE ASSESSEE'S BUSINESS HAS TO BE REGARDED AS AN ALLOWABLE DEDUCTION U/S 37 (1) OF THE I.T. ACT IN THE CASE OF CIT VS. ASSOCIATED ELECTRICAL AGENCI ES (2004) 135 TAXMAN 12 / 266 ITR 63 (MAD.) IT HAS BEEN HELD THAT PAYMENTS MADE HAVING REGARD TO THE COMMERCIAL EXPEDIENCY NEED NOT NECESSARILY HAVE THEIR ORIGIN IN -: 40: - 40 CONTRACTUAL OBLIGATIONS. IF AN ASSESSEE WHO CARRIES ON A BUSINESS FINDS THAT IT IS COMMERCIALLY EXPEDIENT TO INCUR CERTAIN EXPENDITURE DIRECTLY OR INDIRECTLY IT WOULD BE OPEN TO SUCH AN ASSESSEE TO DO SO NOTWITHSTANDING THE FACT THAT A FORMAL DEED DOES NOT PRECEDE THE INCURRING OF SUCH EXPENDITURE. IT WAS FURTHER HELD THAT WHILE IT WAS NO DOUBT TRUE THAT THERE WAS NO LEGAL COMPULSION ON THE ASSE SSEE TO AGREE TO PAY THE SUMS THERE WAS ALSO NO LEGAL BAR ON THEIR AGREEING TO PAY HIGHER PRICES IF THEY FELT IT WAS IN THEIR LONG TERM INTEREST. IT WAS ALSO OPEN F OR THEM TO AGREE TO BEAR A PART OF ADVERTISING & MARKETING COSTS AS THESE COSTS WERE INCURRED WITH A VIEW TO ENLARGE THE MARKET AND TO IMPROVE THE SALES. IN THE CASE OF AJAY SINGH DEOL V/S JCIT (2004) 91 I TD 196 (MUM.) IT WAS HELD THAT AS LONG AS EXPENSES ARE INC URRED WHOLLY & EXCLUSIVELY FOR THE PURPOSES OF EARNING THE INCOME FROM BUSINESS OR PROFESSION MERELY BECAUSE SOME OF THE EXPENSES ARE INCURRED VOLUNTARILY THOSE EXPENSES DO NOT CEASE TO BE DEDUCTIBLE IN NATURE. -: 41: - 41 22. WE HAVE CONSIDERED RIVAL CONTENTIONS AND REMAND REPORT SENT BY THE ASSESSING OFFICER VIS--VIS ASSE SSEES SUBMISSION BEFORE CIT(A ). 23. WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRED ON GLASS WARE IN RESPECT OF PAYMENTS MADE TO M/S. M AHAVIR & CO. AND M/S. KAMINI INDUSTRIES WE FOUND THAT TILL THE AO HAS SENT THE REMAND REPORT THESE PARTIES HAVE NOT CONF IRMED THE TRANSACTIONS WITH THE ASSESSEE. HOWEVER THE CIT(A) HAS OBSERVED THAT CONFIRMATIONS WERE SENT BY BOTH THE P ARTIES TO THE AO AND COPIES WHEREOF WERE ALSO ENDORSED TO THE ASSESSEE WHICH HAS BEEN PRODUCED BY THE ASSESSEE IN THE COUR SE OF APPELLATE PROCEEDINGS BEFORE THE CIT(A). HOWEVER T HE CIT(A) HAS CONFIRMED THE ADDITION TO THE EXTENT OF 25% OF EXPENDITURE INCURRED ON ACCOUNT OF SALES PROMOTION BOTH IN RESP ECT OF DISTRIBUTION OF GOLD COINS AND GLASS WARE ITEMS. BY OBSERVING THAT NET EXPENDITURE INCURRED BY THE ASSESSEE AFTER GIVING SET OFF OF EXPENDITURE REIMBURSED BY M/S. GOODRICK THE NET CLAIM OF EXPENDITURE WORKS OUT AT RS. 81.50 LAKHS. THUS 25 % OF THIS NET AMOUNT WAS DISALLOWED BY THE LD. CIT(A) AM OUNTING TO RS. 20.38 LAKHS OUT OF WHICH RS. 6 LAKHS WAS ATTRI BUTABLE FOR -: 42: - 42 GOLD COINS AND THE REMAINING AMOUNT OF RS. 20.50 LA KHS PERTAINS TO GLASSWARES. KEEPING IN VIEW THE FINDING RECORDED BY THE LD. CIT(A) THAT BOTH THESE PARTIES FROM WHOM PU RCHASES OF GLASSWARES WERE CLAIMED HAVE SENT THEIR CONFIRMATIO NS AND COPY OF WHICH WAS ALSO FURNISHED TO THE CIT(A) DURI NG COURSE OF APPELLATE PROCEEDINGS AND ALSO KEEPING IN VIEW T HAT THESE WERE NOT EXAMINED BY THE ASSESSING OFFICER WE REST ORE THE DISALLOWANCE SO CONFIRMED BY THE LD. CIT(A) TO THE EXTENT OF RS. 20.56 LAKHS TO THE FILE OF THE AO. THE AO IS DIRECT ED TO HAVE A FRESH EXAMINATION OF THE CONFIRMATIONS SO SENT BY T HESE PARTIES. SINCE THESE CONFIRMATIONS COULD NOT BE SEN T TO THE AO EVEN DURING COURSE OF REMAND PROCEEDINGS THE AO HA S NO OCCASION TO EXAMINE THE SAME TO VERIFY THEIR GENUIN ENESS. IN THE INTEREST OF JUSTICE WE RESTORE ENTIRE PURCHASE MADE FROM BOTH THESE PARTIES I.E. M/S. MAHAVIR AND CO. AND M/ S. KAMINI INDUSTRIES TO THE FILE OF THE AO FOR EXAMINING THEM AFRESH AND RE-DECIDE THE ISSUE WITH REGARD TO DISALLOWANCE OF RS. 20.50 LAKHS AS RETAINED BY THE LD. CIT(A). WE DIRECT ACCO RDINGLY. -: 43: - 43 24. NEXT ISSUE RELATES TO DISALLOWANCE OF PACKING EXPENSES. T HE AO HAS EXAMINED THIS ISSUE IN DETAIL ON PAGE 7 TO 10 OF THE ASSESSMENT ORDER. CRUX OF HIS FINDINGS ARE THAT THE ASSESSEE HAS CLAIMED PACKING EXPENSES AT RS.1.81 CRORES AGAINST RS.1.01 CRORES IN THE IMMEDIATELY PRECEDING F.Y. WHEREAS INCREASE IN TURNOVER WAS HARDLY RS.1 CRORE AS TURNOVER DURING THE YEAR STOOD AT RS.39.88 CRORES AGAINST TURNOVER OF RS. 38.80 CRORES IN THE PRECEDING YEAR. THE AO HAS ALSO RECORDED FINDING TO THE EFFECT THAT PACKING CHARGES BEING PAYMENT FOR LABOUR WAS BEING MADE TO M/ S. CONCORDE TEA PACKAGING CO. (IN SHORT M/S. CONCORDE) A SISTER CONCERN ATTRACTING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT TO WHOM PACKING MACHINERIES WERE SUPPLIED BY THE ASSESSEE FOR WHICH NO-LEASE RENT WAS BEING CHARGED AND SUCH -: 44: - 44 PACKING ACTIVITIES WERE CARRIED OUT BY M/S. CONCORDE IN THE GODOWN THAT BELONGED TO M/ S. CONCORDE BUT FOR WHICH GODOWN RENT WAS BEING PAID BY THE ASSESSEE. THE AO THUS HELD THAT ASSESSEE WAS PAYING MORE THAN THE MARKET RATE TO M/ S. CONCORDE CHARGES WHICH WAS BEING PAID AT RS. 1.50 PER KG. HE ALSO HELD THAT PACKING EXPENSES AT RS. I0.70 PER KG WAS VERY EXCESSIVE AND UNREASONABLE AS ACCORDING TO HIM THE MARKET SURVEYS INDICATED THAT PACKING EXPENDITURE EXCLUDING PACKING PER KG. WOULD HARDLY COST 80 PS. PER KG AND MATERIAL USED FOR ASSORTED SIZE IS ABOUT RS.3.25 PER KG AND THE TOTAL EXPENDITURE WOULD THUS BE RS.4 PER KG APPROXIMATELY. THE AO WITH THESE FINDINGS HAS ALLOWED THE PACKING EXPENSES AT RS.5 PER KG RESULTING IN DISALLOWANCE OF THE AMOUNT OF RS. 95 19 975/-. 25. BEFORE THE CIT(A) THE ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSIONS WHEREIN HE HAS EMPHASIZED THAT AO HAS MISAPPRECIATED THE FACTS -: 45: - 45 OF THE ASSESSEE'S CASE AS HE HAS MADE WRONG COMPARISON FOR THE PURPOSE OF PACKING EXPENSES WITH THE GROSS TURNOVER OF THE TWO YEARS. IT WAS CLARIFIED AND EMPHASIZED THAT PACKING EXPENSES WERE INCURRED ONLY FOR ASSESSEE'S OWN BRAND OF TEA I.E. THE 'CAMEL BRAND' AND THE QUANTITY OF TEA SOLD DURING IMMEDIATELY PRECEDING YEAR STOOD AT 127926S KG COMPARED TO THE QUANTITY PACKED DURING THE YEAR AT IS1S2S1 KG AND THUS THERE WAS NEARLY 45% INCREASE IN THE QUANTITY OF PACKED TEA SOLD DURING THE YEAR WHERE THE AO HAS WRONGLY CONSIDERED THE INCREASE IN TURNOVER OF RS.L CRORE VIS-A-VIS LAST YEAR WHICH WORKS OUT TO 2.5% ONLY. I T WAS FURTHER EMPHASIZED THAT THE PACKING EXPENSES CLAIMED IN THE PRECEDING YEAR AT RS. L.0L CRORES FO R 12.79 LAKH KG. SOLD WOULD GIVE THE PACKING COST PER KG. AT ABOUT RS.8/- PER KG. WHEREAS DURING THE YEAR UNDER CONSIDERATION IT INCREASED TO APPROXIMATELY RS. 10 PER KG ON QUANTITY SOLD AT 18.02 LAKH KGS (PAPER BOOK PAGE 253). IT WAS -: 46: - 46 HIGHLIGHTED THAT AO HAS ADOPTED THE ARBITRARY FIGURE OF RS. 4 PER KG BEING PACKING CHARGES WITHOUT GIVING THE COMPARATIVE RATES AND PACKING MATERIAL AND PACKING CHARGES WOULD VARY ACCORDING THE QUALITY OF PACKING MATERIAL USED AND UNLESS THE PACKING MATERIALS USED IN THE COMPARABLE CASES ARE SIMILAR THERE WOULD BE NO PURPOSE IN COMPARING TWO CASES. IN COURSE OF DISCUSSION IT WAS ALSO EMPHASIZED THAT IN THE COMPETITIVE MARKET TO SELL THE PRODUCT OF ASSESSEE'S OWN BRAND VIS-A-VIS BRAND OF MULTINATIONALS THE ASSESSEE HAD TO NECESSARILY INCUR HIGHER EXPENSES ON PACKAGING USING THE BEST MATERIAL AVAILABLE SO AS TO ATTRACT CUSTOMERS. IT WAS ALSO EMPHASIZED THAT IN THE REMAND REPORT THE AO HAS CONFIRMED ENTIRE PACKAGING EXPENSES INCURRED TO THE EXTENT OF RS.1 50 95 349/-. THE ASSESSEE HAS ALSO RELIED ON THE COMPARATIVE FIGURES GIVEN FOR PACKING EXPENSES (LABOUR CHARGES) INCURRED BY OTHER TEA PACKERS AT KOLKATA. -: 47: - 47 26. IN THE FACTS OF THE RECORD THE AO'S FINDING TO THE EXTENT THE PAYMENT OF PACKAGING EXPENSES BEING PAID TO M/ S. CONCORDE AND M/ S. TIWARI TEA PACKAGING AT RS.1.50 / RS.2 PER KG WERE EXCESSIVE HAS DEFINITE MERIT AS BEING DISCUSSED HEREINAFTER. BUT IT HAS TO BE FIRST OF ALL NOTED THAT THE AO'S FINDING IN THE MATTER OF DISALLOWANCE OF HUGE PACKAGING EXPENSES AT RS.95.20 LAKHS ARE ENTIRELY VITIATED BY WRONG APPRECIATION OF FACTS. FIRST OF A LL HE HAS FAILED TO TAKE INTO CONSIDERATION THE MOST IMPORTANT FACT THAT PACKING EXPENSES WOULD BE INCURRED ONLY FOR ASSESSEE'S OWN BRAND WHERE THE QUANTITY OF PACKAGED TEA SOLD DURING THE YEAR VIS- A-VIS EARLIER YEAR INCREASED TO 45% AND THUS HE MISDIRECTED HIMSELF BY CONSIDERING THE INCREASE IN GROSS TURNOVER AT RS.1 CRORE AND WHICH HAS RESULTED IN TOTAL DISTORTION OF THE FINDINGS ARRIVE D. SECONDLY THE AO HAS REFERRED TO THE MARKET SURVEY BUT HE HAS NOWHERE MENTIONED THE NAME OF THE AGENCY AND ITS CREDENTIALS WHO HAD CONDUCTED -: 48: - 48 SUCH MARKET SURVEY AND HENCE IN ABSENCE OF THE CREDENTIAL OF THE MARKET AGENCY NO RELIANCE CAN BE PLACED ON SUCH FIGURE OF RS. 4 PER KG MORE SO WHEN THE PACKING MATERIAL USED BY THE ASSESSEE IS. NOT ESTABLISHED TO BE COMPARABLE OR SIMILAR TO THE OTHER CASES. IN THE ASSESSEE'S CASE IT IS AN ADMITTED POSITION OF RECORD THAT LABOUR EXPENSES WERE RS.1.50 / RS.2 PER KG AND THE REST AMOUNT OF RS. 8.50 APP. PER KG. WAS SPENT FOR PACKING MATERIALS USED. SUBSEQUENTLY AO IN THE REMAND REPORT HAS CONFIRMED THE PROCUREMENT OF ENTIRE PACKING MATERIAL INCLUDING THE LABOUR PAYMENTS MADE. 27. A BROAD ANALYSIS OF PACKAGING EXPENSES INCURRED GIVES THE FOLLOWING PICTURE: I. EXPENSES ON LAMINATE POUCH RS.116.06IAKHS II. JUTE BAG RS. 29.101AKHS III. PLASTIC BAG RS. 7.961AKHS IV. LABOUR PAYMENTS RS. 27.81 LAKHS RS.180.95 LAKHS -: 49: - 49 28. THE BASIC MATERIAL USED IN PACKAGING IS THAT OF LAMINATE POUCH; AND IF THE TOTAL AMOUNT SPENT ON THE SAME AT RS.116.06 LAKHS IS DIVIDED BY THE ACTUAL QUANTITY OF TEA PACKED DURING THE YEAR I.E. 17.17 LAKHS KGS(PAPER BOOK PG.546) IT GIVES THE COST PER KG AT RS.6.25 (APP.) PER KG ONLY AND RS.1.5/ RS.2 PER KG ARE SPENT FOR LABOUR CHARGES AND THE BALANCE AMOUNT OF APP. RS.2 PER KG IS INCURRED ON JUTE BAGS AND PLASTIC BAGS I.E. BULK PACKAGING FOR SUPPLY TO THESE TEA PACKS IN LARGE QUANTITIES TO CUSTOMERS. IT APPEARS THAT WHILE CONSIDERING THE COST OF PACKING OF RS.4 PER KG. THE AO ALTOGETHER LOST SIGHT OF THE SUBSEQUENT EXPENSES INCURRED FOR BULK PACKAGING. 29. BY THE IMPUGNED ORDER THE LD. CIT(A) HAD ALLOWED PACKING EXPENSES AT RS. 0.80 PS. PER KG. FOLLOWING WAS THE OBSERVATION OF CIT(A) :- IN VIEW OF THE ABOVE ANALYSIS AND -: 50: - 50 LOOKING AT THE PAST HISTORY AND THE SUBSEQUENT ASSESSMENT OF THE ASSESSEE'S OWN CASE WHERE THE PROCUREMENT OF PACKING MATERIAL HAS NEVER BEEN IN DISPUTE THE AO'S ACTION IN DISALLOWING THE HUGE AMOUNT BASED ON AN ARBITRARY PACKING RATE OF RS.5 PER KG CANNOT BE SUSTAINED. IT IS HOWEVER TRUE THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH HIS CLAIM ABOUT PACKING CHARGES BEING PAID TO SISTER CONCERN M/S. CONCORDE AND M/S. TIWARI TEA PACKAGING @ RS.1.5 AND RS.2 PER KG. WITH EVEN THE MACHINERY OWNED BY THE ASSESSEE AND THE PREMISES FOR WHICH RENT WAS SEPARATELY BEING PAID WERE USED TO M/S. CONCORDE FOR THIS PACKING PURPOSES AND THUS THE TRANSACTIONS ALSO ARE NOT AT ARM'S LENGTH. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO ESTABLISH THAT PACKING -: 51: - 51 EXPENSES WERE BEING INCURRED BY OTHER TEA PACKERS @ RS.1.5 / RS.2 PER KG WHEN EVEN THE ENTIRE MATERIAL AND ASSESSEE'S OWN PREMISES WERE BEING USED FOR THE PURPOSE AS PAID TO M/S. CONCORDE AND M/S. TIWARI TEA PACKAGING. THIS ISSUE HAS ALSO BEEN EXAMINED IN NECESSARY DETAIL IN APPEAL ORDER PASSED IN ASSESSEE'S OWN CASE FOR A.Y. 2005-06. 30. AFTER CONSIDERING ALL THE ASPECTS THE CIT(A) HELD THAT PACKING CHARGES OF RS. 0.80 PER KG. IS REASONABLE IN SO FAR AS ALL PACKING MATERIALS WERE SUPPLIED BY THE ASSESSEE AND ONLY LABOUR CHARGES WERE PAID BY SISTER CONCERN M/S. CONCORD TEA PACKING LIMITED. BEING AGGRIEVED BY ABOVE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 31. WITH REGARD TO THE DISALLOWANCE OF PACKING EXPENSES OF RS. 95 19 975/- ON THE PLEA OF LOWER EXPENDITUR E HAVING -: 52: - 52 BEEN INCURRED IN THE IMMEDIATELY PRECEDING FINANCIA L YEAR WE FOUND THAT PACKING WAS GOT DONE BY THE ASSESSEE WIT H ITS SISTER CONCERN. ALL THE PACKING MATERIALS WERE SUPP LIED BY THE ASSESSEE FIRM AND THE PAYMENT MADE TO THE SISTER CO NCERN M/S. CONCORD TEA PACKAGING LIMITED WAS ONLY IN RESP ECT OF THE LABOUR CHARGES PUT FOR UNDERTAKING THE PACKING WHICH WAS @ RS.1.50 PER KG. AFTER HAVING DETAILED OBSERVATION THE LD. CIT(A) FOUND THAT EXPENDITURE OF 0.80 PS. PER KG. O F THE ONLY TEA PACKED DURING THE YEAR WAS A REASONABLE EXPENDI TURE WHICH CAN BE ALLOWED. REASONABLENESS OF THE EXPENDI TURE SO INCURRED ON ACCOUNT OF LABOUR CHARGES FOR PACKING A T 0.80 PS. PER KG. WAS NOT CONTROVERTED BY THE DEPARTMENT BY B RINING ANY POSITIVE MATERIAL ON RECORD WE THEREFORE UPH OLD THE ACTION OF THE LD. CIT(A) FOR RETAINING DISALLOWANCE S TO THE EXTENT OF RS. 14.50 LAKHS ON ACCOUNT OF SUCH PACKING EXPEN SES. ACCORDINGLY ACTION OF CIT(A) IS CONFIRMED. 32. T HE MATTER OF DISALLOWANCE OF SHORTAGE OF GOODS AT RS. 59 88 050/- AS PER FINDING RECORDED BY THE ASSESSING OFFICER ON PAGE 10 OF THE ASSESSMENT ORDER. THE CIT(A) OBSERVED THAT THIS ISSUE WAS -: 53: - 53 EXAMINED IN DETAIL IN THE CASE OF THE ASSESSEE FOR A.Y. 2005-06 AND 2006-07 IN APPEAL NO. IT-187 118/07-08 DATED 11.9.2009 WHEREIN DETAILED FINDINGS HAVE BEEN RECORDED AS UNDER:- 4.4 NOW COMING TO THE LAST ISSUE OF SHORTAGE CLAIMED IT IS SEEN THAT THE ASSESSEE FURNISHED DETAILED EXPLANATION TO THE AO EXPLAINING THE NATURE OF ASSESSEE'S BUSINESS AND THE VARIOUS STAGES IN THE ENTIRE BUSINESS PROCESS I.E. TRANSPORTATION LOADING UNLOADING AND PACKING IN SMALL PACKETS AND LARGE PACKETS WHICH RESULTED IN SHORTAGE CLAIMED. THE AO REJECTED SUCH CONTENTIONS BY SIMPLY STATING THAT THE ARGUMENTS ADVANCED BY THE ASSESSEE WERE NOT SUPPORTED BY ANY EVIDENCE ALTHOUGH SIMULTANEOUSLY ADMITTING THAT THERE WOULD BE SOME SHORTAGE IN A BUSINESS WHERE THE PROCESS INVOLVES RE-PACKING BUT MERELY FOR WANT OF PRIMARY EVIDENCE REJECTED THE ENTIRE CLAIM OF -: 54: - 54 SHORTAGE AT 61260 KGS RESULTING IN ADDITION OF RS.59 23 202/- @RS.90.16 PER KG. THE AVERAGE RATE OF PURCHASES SUPPLIED BY THE ASSESSEE. IT WAS ALSO OBSERVED BY THE AO THAT THIS ISSUE WAS SUBJECTIVE AND IS NOT PROVED BY THE ASSESSEE BY ANY FACTUAL CROSS-VERIFICATION AND HENCE THIS AMOUNT WAS TO BE DISALLOWED. 4.4.1 THE ASSESSEE HAS FURNISHED A STATEMENT OF SHORTAGES FROM A.Y. 2002-03 TO 2006-07 WHICH IS REPRODUCED HEREUNDER: A.Y. SALES (IN KG.) SHORTAGE % SHORTAGE PACKING IN KG. 2002-03 27 57 758 41 027 1.487 18 02 381 2003-04 36 84 991 57 859 1.570 17 16 775 2004-05 40 48 163 73 025 1.803 18 42 620 2005-06 40 04 224 61 260 1.529% 18 42 620 2006-07 40 74 739 61 058 1.498% 18 75 553 4.4.2 IT WAS ALSO EMPHASIZED THAT UPTO A.Y. 2003- 04 EVEN IN REGULAR ASSESSMENT COMPLETED U/S. L43(3) THE SHORTAGES CLAIMED WERE ALLOWED FULLY. THE AO'S APPROACH IN THE YEAR UNDER CONSIDERATION -: 55: - 55 IS FOUND TO BE SELF- CONTRADICTORY AND LACKS CONVICTION. ON ONE HAND THE AO NOTES THAT THERE IS BOUND TO BE SOME SHORTAGE INVOLVED IN A BUSINESS INVOLVING RE-PACKING PROCESSES BUT NO FINDING HAVE BEEN RECORDED BY THE AO TO THE EFFECT THAT HE SHORTAGES CLAIMED WERE EXCESSIVE OR UNREASONABLE EITHER LOOKING TO THE PAST HISTORY OF THE ASSESSEE' S CASE OR WITH REFERENCE TO THE COMPARABLE CASE(S) OR STANDARD LAID DOWN BY ANY STATUTORY/ TRADE BODY OR THE USUAL PRACTICE PREVALENT IN THE LINE OF TRAD E. ON ANALYSIS OF THE STATEMENT OF SHORTAGE CLAIMED SUCH FIGURES BEING VERIFIABLE FROM THE AUDIT REPORT IT IS SEEN THAT BROADLY THE CLAIM OF SHORTAGES HAS BEE N 1.5% APPROXIMATELY FOR MOST OF THE YEARS EXCEPT IN RESPECT OF A.Y. 2004-05 WHERE IT HAS BEEN CLAIMED AT 1.8 %. IN THE YEAR UNDER CONSIDERATION THE SHORTAGES CLAIMED WORKED OUT TO 1.529% WHICH APPEARS TO BE REASONABLE CONSIDERING THE PAST HISTORY OF THE CASE AS WELL THE VARIOUS STAGES -: 56: - 56 INVOLVED IN THE NATURE OF ASSESSEE'S BUSINESS IN PARTICULAR THE PROCESS OF RE-PACKING FROM LARGE PACKS TO SMALLER PACKS OF DIFFERENT SIZES AS SMALL AS TO 250 GMS. THUS THE DISALLOWANCE MADE BY THE AO ON THIS COUNT IS FOUND TO BE TOTALLY UNWARRANTED AND IS ACCORDINGLY DIRECTED TO BE DELETED. 33. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ORDERS OF LOWER AUTHORITIES ON THIS ISSUE. 34. WITH REGARD TO THE CLAIM OF SHORTAGE OF GOODS WE FOUND THAT KEEPING IN VIEW THE ASSESSEES NATURE OF BUSINESS WHICH CONSISTED OF TRANSPORTATION LOADING UNLOADI NG AND PACKING IN SMALL PACKETS AND LARGE PACKETS ESSENTI ALLY ENVISAGE SHORTAGE OF GOODS. HOWEVER THE AO HAS REJ ECTED THE ASSESSEES ARGUMENT BY STATING THAT THE SAME IS NOT SUPPORTED BY ANY EVIDENCE. HOWEVER WE FOUND THAT THE AO HIMS ELF HAS AGREED THAT IN THE BUSINESS WHERE PROCESS INVOLVES REPACKING SOME SHORTAGE IS BOUND TO OCCUR. AFTER GIVING DETAI LED FINDING WITH REGARD TO THE PROCESS AND THE SHORTAGE ACTUALL Y CLAIMED -: 57: - 57 IN THE EARLIER YEARS THE LD. CIT(A) REACHED TO TH E FINDING THAT SHORTAGE TO THE EXTENT OF 1.5 % WAS JUSTIFIED ACCO RDINGLY HE UPHELD THE DISALLOWANCE TO THE EXTENT OF 1.5 % AS A GAINST CLAIM OF THE ASSESSEE TO THE EXTENT OF 1.80 % DURIN G THE YEAR UNDER CONSIDERATION. WE DO NOT FIND ANY INFIRMITY I N THE CONCLUSION OF THE CIT(A) FOR ALLOWING SHORTAGE AT 1 .5 %. 35. LAST ISSUE RELATES TO DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS. 30.00 LAKHS. THE CIT(A) CALLED FOR REMAND REPORT FROM AO. 36. T HE AO IN HIS REMAND REPORT DATED 12.2.08 AFTER ISSUE OF NOTICE U/S.133(6) AND CONSIDERING HE COMPLIANCE MADE BY DIFFERENT PARTIES HAS NOTED THAT OUT OF 23 PARTIES / ITEMS PERTAINING TO ADVERTISEMENT EXPENSES NO CONFIRMATION WERE RECEIVED IN RESPECT OF THE FOLLOWING PARTIES / ITEMS: A. BASRA ADVERTISEMENT 16 800 B. GRAM SANSKRITI 49 000 C. NOVEM PACKAGING 57 616 D. GLOWSING BOARD LIGHT 3 093 -: 58: - 58 37. THE CIT(A) CALLED FOR COUNTER COMMENTS FROM THE ASSESSEE. THE ASSESSEE IN THE COUNTER- COMMENTS ON THE ISSUE HAS SUBMITTED AS UNDER: THE ASSESSING OFFICER HAS ISSUED NOTICES U/S 133(6) OF THE I.T.ACT 1961 AND ALLMOST ALL THE PARTIES TO WHOM THE NOTICES HAVE BEEN ISSUED HAVE CONFIRMED THE EXPENSES INCURR ED ON ADVERTISEMENT EXCEPT THE PARTIES MENTIONED AT S.NO. 7 10 15 & 23 AS STATED BY THE A.D. REGARDING PARTY MENTIONED AT S. NO. 7 (GRAM SANSKRATI) AND PARTY MENTIONED AT S.NO. 15 (NOVUM PACKERS) IT IS TO BE BROUGHT ON RECORD THAT THE SAID PARTIES HAD COMPLIED WITH TO THE NOTICES U/S 133(6) ISSUED TO THEM BY THE A.D. AND HAD ACCORDINGLY FILED THE CONF IRMATION IN THE OFFICE OF THE A.O.ON 25/01/2008 RECEIPTED COPIE S OF WHICH ARE OBTAINED AND ARE ENCLOSED HEREWITH FOR READY REFERENCE. THE CONFIRMATIONS FILED IN THE OFFICE MIGHT HAVE BE EN MISPLACED. IN THE CASE OF PARTY MENTIONED AT S.NO. 10 (MASS MEDIA) IT IS SUBMITTED THAT THE OFFICE OF THE SAID PARTY IS CLOS ED AND IS THUS NOT TRACEABLE. -: 59: - 59 IN THE CASE OF PARTY MENTIONED AT S.NO. 23 ( GLOW SHINE BOARD LIGHT) IT IS HUMBLY SUBMITTED THAT THIS IS NOT THE NAME OF ANY PARTY BUT IT IS THE HEAD OF EXPENDITURE AND THE SAI D EXPENSES WAS INCURRED FOR MAKING OF A GLOW SHINE BOARD. THUS LOOKING TO THE TOTALITY OF THE CIRCUMSTANCES & EVIDENCES AND FACTS BROUGHT ON RECORD THESE EXPENSE S ARE SUBMITTED TO BE KINDLY CONSIDERED AS CONFIRMED AS AND THE ADDITION DESERVES TO BE DELETED . SIMILARLY IN THE CASE OF M/S BAKLIWAL TRADERS INDO RE SUMMONS U/S 131 HAVE BEEN ISSUED BY THE ASSESSING O FFICER AND IN THE STATEMENT RECORDED HAS CONFIRMED THE TRANSACTIO NS WITH THE ASSESSEE FIRM. THE ASSESSEE FIRM HAS ALREADY FURNIS HED ALL THE DETAILS INCLUDING COPY OF A/C OF M/S BAKLIWAL TRADE RS COPY OF PURCHASE BILLS AND EVEN THE PAYMENTS HAVE BEEN MADE BY A/C PAYEE CHEQUES. THE DISALLOWANCES WAS MADE DUE TO REASONS THAT M/S. BAKLIWAL TRADERS HAVE SHOWN RS.9 84 549/- AS DUE FROM THE ASSESSEE FIRM AS ON 31.3.2004 AS AGAINST RS. 19 84 549/- SHOWN BY THE ASSESSEE FIRM. THE ASSESSEE SUBMITS THAT THE ACCOUNT OF M/S. BAKLI WAL TRADERS -: 60: - 60 WAS SETTLED AND ALL THE PAYMENTS TO THEM OR TO PARTIES ON THEIR DIRECTION HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES. THE COPY OF A/CS ALREADY ENCLOSED REVEAL THAT THE TOTAL PAYMENT S HAVE BEEN MADE BY A/C PAYEE CHEQUES IN THE NAME OF M/S BAKLIW AL TRADERS & INFINITY INDUSTRIES PVT. LTD. ON BEHALF OF M/S BAKL IWAL TRADERS AND HAVE BEEN CLEARED IN THEIR BANK A/C WITH DENA BANK SITLAMATA BRANCH INDORE AND ICICI BANK M.G.ROAD BR. INDORE R ESPECTIVELY. THUS IT IS IMPRESSED UPON YOUR HONOUR THAT IF ALL T HE PAYMENTS HAVE BEEN MADE BY A/C PAYEE CHEQUES BY THE ASSESSEE FIRM AND THE OTHER PARTY HAS REALISED THOSE CHEQUES THROUGH THEI R BANK A/CS THERE IS NO MISTAKE ON THE PART OF THE ASSESSEE FIR M AND THE A/CS AND BALANCE-SHEET OF THE ASSESSEE FIRM ARE TRUE & CORRECT. MAY IT FURTHER BE APPRECIATED THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOR A.YR. 2005-06 SUMMONS WERE ISSUED TO M/S. BAKLIWAL TRADERS INDORE. THE SAID PARTY WAS ASKED TO RECONCILE THE BALANCES AS SHOWN BY THE ASSESSEE FIRM AND AS SHOWN BY HIM. IN THE SAID STATEMENT THE SAID PERSON ACCEPTED THAT TH E CASH CREDITED IN HIS BOOKS OF A/CS IN THE NAME OF MIS GHANSHYAMDAS & CO. WAS PROBABLY NOT GIVEN BY THE ASSESSEE FIRM AND HE COULD NOT REMEMBER THE SOURCE OF THE SAID CASH CREDITED IN HIS BOOKS~THE SAID PARTY EVEN FAILED TO PRODUCE HIS BOOKS OF A/CS WHEREAS THE -: 61: - 61 ASSESSEE FIRM HAD PRODUCED ALL THE DETAILS & EVIDENCES TO PROVE THE BALANCE AS SHOWN. THUS THE BURDEN WHIC H WAS ON THE ASSESSEE FIRM TO PROVE THE CREDIT HAS BEEN DISCHARGED BY THE ASSESSEE FIRM. COPY OF THE STATEMENT RECORDED DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.YR.2005-06 IS ENCLOSED HEREWITH WHICH SPEAKS FOR ITSELF. THE ASSESSEE FIRM ALSO RELIES ON THE COMMENTS OF TH E ASSESSING OFFICER MADE IN THE ASSESSMENT ORDER PASSED FOR A.Y R. 05-06 WHICH READS AS UNDER (PAGE 4 OF 14) ;_ ' HOWEVER THERE IS NO PRIMARY EVIDENCE PRODUCED BY M/S. BAKLIWAL TRADERS THAT THE AMOUNT REFLECTED IN THE A /C OF M/S BAKLIWAL TRADERS IS CORRECT. THE ASSESSEE ON TH E OTHER HAND HAS GIVEN BANK STATEMENTS SHOWING THE BALANCE AS APPEARING IN ITS BOOKS OF A/CS HAVE BEEN CLEARED IN THE FOLLOWING YEAR AND THE ACCOUNT EVENTUALLY IS SQUARE D UP. ALL THE PAYMENTS MADE BY THE ASSESSEE ARE BY CHEQUE AND CONFIRMED BY MR. RAMESH KUMAR BAKLIWAL PROP. OF M/S BAKLIWAL TRADERS IN THE STATEMENT RECORDED ON 31/12/2007. FURTHER MR. RAMESH KUMAR BAKLIWAL SAYS :_ ' AS THE ISSUE RELATES TO THREE YEARS -: 62: - 62 BACK HE COULD NOT RECOLLECT ALL THE DETAILS. ' AND THE ASSESSING OFFICER COMMENTS :_ ' HOWEVER M/S BAKLIWAL TRADERS HAVE NOT PRODUCED ANY EVIDENCE PROVING THAT THE BALANCE SHOWN BY IT IS CORRECT.' IN THE CIRCUMSTANCES THE BALANCE AS SHOWN IN THE ASSESSEE BOOKS DESERVES TO BE ACCEPTED AND THE ADDITION MAY KINDLY BE DELETED. 38. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED DISALLOWANCE OF RS. 3.50 LAKHS AFTER HAVING THE FOL LOWING OBSERVATIONS : THE AO IN MAKING HUGE DISALLOWANCE OF RS. 30 LAKHS OUT OF TOTAL AMOUNT CLAIMED FOR ADVERTISEMENT EXPENSES AT RS. 67.74 LAKHS HAS MAINLY BANKED ON THE FACT THAT A TRANSACTION WITH -: 63: - 63 M/S. BAKLIWAL TRADERS WERE NOT GENUINE AND CANNOT BE TREATED AS TRANSACTION ENTERED FOR BUSINESS PURPOSES. SO ALSO HE HAS EXPRESSED HIS VIEWS ABOUT NON-VERIFIABILITY OF AMOUNT SPENT ON ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSEE AND IN RESPECT OF PARTIES FROM WHOM NO CONFIRMATION HAS BEEN RECEIVED BY THE ASSESSING OFFICER. THE ASSESSEE HAS FURNISHED NECESSARY CLARIFICATION. THE GROSS AMOUNT IN RESPECT OF WHICH THE AO FAILED TO OBTAINED CONFIRMATION DO NOT EXCEED RS.1.5 LAKHS. IT WAS FURTHER EMPHASIZED IN THE COURSE OF APPEAL HEARING THAT EXPENSES ON ADVERTISEMENT WAS A MUST IN THE LINE OF THE ASSESSEE'S BUSINESS LOOKING TO THE HIGHLY COMPETITIVE NATURE OF BUSINESS TO KEEP ITS OWN BRAND IN PUBLIC KNOWLEDGE AND DOMAIN. IT WAS ALSO EMPHASIZED THAT SIMILAR AMOUNT OF ADVERTISEMENT EXPENSES HAVE BEEN INCURRED IN THE LATER YEARS ALSO ON WHICH THE ASSESSEE HAS FURTHER PAID SUBSTANTIAL AMOUNT BY WAY OF FRINGE -: 64: - 64 BENEFIT TAX. THUS ON OVERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE DISALLOWANCE OF RS.3.5 LAKHS I.E. 5% OF THE TOTAL AMOUNT OF EXPENSES CLAIMED IS CONFIRMED KEEPING IN VIEW THE FINDINGS OF THE AO IN THE MATTER OF LACK OF VERIFIABILITY OF CERTAIN EXPENSES. THE ASSESSEE WOULD BE ENTITLED TO CONSEQUENTIAL RELIEF. 39. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. 40. THE LAST ISSUE RELATES TO DISALLOWANCE OF EXPENDIT URE OF RS. 30 LAKHS ON ACCOUNT OF ADVERTISEMENT. WE FOU ND THAT THE AO HAS DOUBTED THE GENUINENESS OF THE EXPENDITU RE SO INCURRED AS THE ASSESSEE COULD NOT FURNISH THE CONF IRMATION OF THE EXPENDITURE SO INCURRED TO THE AO AT THE TIME OF ORIGINAL ASSESSMENT. HOWEVER DURING REMAND PROCEEDINGS THE AO ISSUED NOTICE U/S 133(6) TO ALL THE PARTIES WHO WE RE PAID ADVERTISEMENT EXPENSES DURING THE YEAR UNDER CONSID ERATION. WE FIND THAT AS PER THE CHART APPENDED AT PAGE 5 OF THE REMAND REPORT THE PARTIES MENTIONED AT SERIAL NOS. 7 10 15 AND 23 HAD NOT FILED THE CONFIRMATION. HOWEVER IN RESPECT OF -: 65: - 65 PARTIES MENTIONED AT SERIAL NO. 16 M/S. PALKIWALLA TRADERS THE AO STATED THAT SHRI MANOJ KUMAR S/O SHRI RAMESH CHA NDRA ATTENDED THE AO IN COMPLIANCE TO SUMMON ISSUED U/S 131 WHEREIN HE ADMITTED IN HIS STATEMENT ON OATH THAT H IS FIRM HAS MADE TRANSACTION WITH THE ASSESSEE FIRM. HOWEVE R THE PLEA WAS THAT ITS RECORDS WERE BURNT IN FIRE THERE FORE THE SAME WERE NOT AVAILABLE WITH HIM. KEEPING IN VIEW T OTALITY OF FACTS AND CIRCUMSTANCES VIS--VIS THE FINDINGS REC ORDED BY THE LD. CIT(A) AND THE OBSERVATIONS MADE BY THE ASSESSI NG OFFICER IN HIS REMAND REPORT WE RESTORE THIS MATTER BACK T O THE FILE OF AO WITH REGARD TO THE EXPENDITURE INCURRED AND PAID TO M/S. GRAM SANSKRITI M/S. MASS MEDIA M/S. NAVON PACKERS M/S. PALKIWALLA TRADERS AND M/S. GLOW SIGN BOARD LIGHT B RANCH. THE AO IS DIRECTED TO EXAMINE THESE PARTIES AFRESH AND DECIDE THE ISSUE OF DISALLOWANCE OF EXPENDITURE INCURRED O N ACCOUNT OF PAYMENT TO THESE PARTIES AFRESH. WE DIRECT ACCOR DINGLY. 41. THE NEXT GROUND OF APPEAL IS DIRECTED AGAINST DISALLOWANCE OF BROKERAGE EXPENSES AT RS.98040/- PAID TO SHRI MANUBHAI SHAH AND SHRI SANJAY AGRAWAL. THE AO HAS RECORDED HIS FINDING ON -: 66: - 66 THE ISSUE AT PAGE 13 OF THE ASSESSMENT ORDER. THIS DISALLOWANCE CAME TO BE MADE BY THE AO FOR TWO REASONS. FIRST BEING THAT THE ASSESSEE FAILED TO G IVE JUSTIFICATION FOR SUCH PAYMENT AND CONTRIBUTION AND EFFORTS MADE BY THESE PERSONS/PARTIES CANNOT BE EXPLAINED AND FURTHER THE INSPECTOR DEPUTED BY AO TO MAKE INQUIRIES REPORTED TO THE AO THAT SUCH PERSONS WERE NOT DOING THE BUSINESS OF BROKERAGE AND SUCH AMOUNT REMAINED OUTSTANDING TILL THE DATE OF PASSING OF ASSESSMENT ORDER. A.Y. 2005-06 42. WITH REGARD TO THE ASSESSMENT YEAR 2005-06 IN TERMS OF OUR ABOVE OBSERVATION IN ASSESSMENT YEAR 2 004-05 WE DIRECT THE AO TO ALLOW SHORTAGE AT 1.5 % AS DIS CUSSED HEREINABOVE. 43. THE GROUNDS TAKEN BY THE REVENUE WITH REGARD TO DELETION OF ADDITION OF RS. 65 451/- ON ACCOUNT OF DIFFERENCE IN THE ACCOUNT OF PALKIWALLA TRADERS KEEPING IN TO VI EW OUR OBSERVATION IN THE ASSESSMENT YEAR 2004-05 WHERE M ATTER -: 67: - 67 WAS RESTORED TO THE FILE OF THE AO FOR EXAMINING AF RESH THE PAYMENT MADE TO M/S. PALKIWALLA TRADERS THE GROUND NO.2 OF THE REVENUES APPEAL WITH REGARD TO DELETION OF ADD ITION OF RS. 65 451/- IS ALSO RESTORED TO THE FILE OF THE AO FOR DECIDING AFRESH. A.Y. 2006-07 44. IN THE ASSESSMENT YEAR 2006-07 BOTH ASSESSEE AND REVENUE HAVE TAKEN THE GROUND WITH REGARD TO DISALL OWANCE OF CLAIM OF SHORTAGE. IN TERMS OF OUR ABOVE OBSERVATIO N IN THE ASSESSMENT YEAR 2004-05 WE DIRECT THE AO TO ALLOW THE SHORTAGE TO THE EXTENT OF 1.5 % AS DISCUSSED HEREIN ABOVE. 45. WE FOUND THAT DURING THIS YEAR THERE WAS SURVEY A T ASSESSEES BUSINESS PREMISES ON 6.1.2006. DURING TH E COURSE OF SURVEY INVENTORY OF STOCK AND CASH WAS TAKEN. T HE ASSESSEE SURRENDERED RS. 55 09 236/- ON ACCOUNT OF EXCESS CA SH AND STOCK. HOWEVER IN THE RETURN THE ASSESSEE HAS DIS CLOSED ONLY EXCESS CASH OF RS. 4 24 019/-. DURING THE COURSE OF ASSESSMENT THE AO AGAIN CHECKED THE VALUATION OF S TOCK OF INVENTORY PREPARED AT THE TIME OF SURVEY AND FOUND THAT CONTENTION OF THE ASSESSEE WITH REGARD TO VALUATION WAS -: 68: - 68 CORRECT. THERE WAS TOTALING MISTAKE AT THE TIME OF SURVEY AND EXCESS STOCK WAS TAKEN AT RS. 56 08 392/- IN PLACE OF RS. 10 38 350/-. HOWEVER THE AO FOUND THAT THERE WAS S HORTAGE IN STOCK OF RS. 5 23 175/-. HE COMPUTED PROFIT AT T HE GROSS PROFIT RATE OF 9.78 % ON SUCH SHORTAGE OF STOCK AND MADE THE ADDITION OF RS. 51 166/-. HOWEVER THE CIT(A) HAS D ELETED THE SAME BY OBSERVING THAT KEEPING IN VIEW HUGE STOCK THERE MIGHT BE ERROR OF MARGINAL AMOUNT. FOLLOWING WAS TH E PRECISE OBSERVATION OF THE CIT(A) :- C OMING TO THE FIRST ISSUE OF ADDITION OF RS.51 166/- ON SHORTAGE IN STOCK FOUND IN COURSE OF SURVEY OPERATION AT RS.5 23 175/- AGAINST OVERALL STOCK AS PER BOOKS AT RS.3.15 CRORES APPROXIMATELY IT IS SEEN THAT THE AO HAS MADE SEPARATE GP ADDITIO N OF RS.4 07 083/- ALSO. THE ASSESSEES CASE IS THAT THE SHORTAGE WAS DETERMINED ON THE BASIS OF GP RATE OF EARLIER YEAR AT 9.78% AGAINST THE GP RATE IN THE YEAR UNDER CONSIDERATION @9.69% AND SUCH WAS JUST A TENTATIVE FIGURE AND IF THE STOCK ON THE DAY OF SURVEY WAS WORKED OUT SHORTAGE ARRIVED ON THE BASIS -: 69: - 69 OF GP RATE OF 9.69% THE SHORTAGE WOULD GET REDUCED TO RS.1 74 465/- ONLY AND SUCH DIFFERENCE WAS MARGINAL AND MAY BE ON ACCOUNT OF ROUNDING OF WEIGHT ETC. AND FOR SUCH INSIGNIFICANT DIFFERENCE I N STOCK WHEN SHORTAGE IN ANY BUSINESS PROCESS WAS A NORMAL AND REGULAR FEATURE THERE WAS NO CASE FOR T HE AO TO INFER THAT THE ASSESSEE WAS INDULGING IN UNRECORDED SALES WHEN NO EVIDENCES TO THAT EFFECT WERE FOUND IN COURSE OF SURVEY OPERATION OR IN COUR SE OF ASSESSMENT PROCEEDINGS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS WELL AS IN EARLIER YEAR S. 46. BEING AGGRIEVED BY THE CIT(A)S ORDER REVENUE IS IN FURTHER APPEAL BEFORE US. KEEPING IN VIEW THE FINAL SHORTAGE OF STOCK AS WORKED OUT BY THE LD. CIT(A) AT RS. 1 74 4 65/- WE DIRECT THE AO TO RETAIN ADDITION BY APPLYING GROSS PROFIT RATE OF 9.69 % ON SUCH SHORTAGE OF STOCK. WE DIRECT ACCORDI NGLY. 47. KEEPING IN VIEW DISCREPANCY IN THE STOCK THE AO H AS ALSO REJECTED BOOK RESULT AND BY APPLYING THE GROSS PROFIT RATE OF 9.78 % A TRADING ADDITION OF RS. 4 07 083/- WAS MADE. BY -: 70: - 70 THE IMPUGNED ORDER THE LD. CIT(A) RESTRICTED THE T RADING ADDITION TO THE EXTENT OF RS.2 LAKHS AGAINST WHICH BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. WE FO UND THAT IN THE EARLIER ASSESSMENT YEAR THE ASSESSEE HAD SH OWN GROSS PROFIT AT 9.78 % ON THE SALES OF RS. 46.52 CRORES. HOWEVER DURING THE YEAR UNDER CONSIDERATION ON THE SALES O F RS. 46.67 CRORES THE ASSESSEE HAD SHOWN GROSS PROFIT OF 9.69 %. BY ACCEPTING THE ASSESSEES CONTENTION WITH REGARD TO INCREASE IN FREIGHT AND LABOUR CHARGES DURING THE YEAR UNDER CONSIDERATION THE CIT(A) RESTRICTED THE GROSS PROF IT ADDITION TO THE EXTENT OF RS. 2 LAKHS AFTER HAVING THE FOLLOWI NG OBSERVATIONS :- COMING TO THE ISSUE OF GP ADDITION THE FINDINGS GIVEN BY THE AO HAS BEEN ALREADY NOTICED ABOVE AND ASSESSEES SUBMISSION HAS ALSO BEEN EXTRACTED ABOVE. IT IS AN ADMITTED POSITION THAT IN SURVEY OPERATION EXCESS CASH OF RS.4 24 000/- WAS FOUND WHICH WAS SURRENDERED FOR TAXATION. THUS IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNTS MAINTAINED BY TH E ASSESSEE WERE FULLY RELIABLE. SIMULTANEOUSLY IT HAS TO -: 71: - 71 BE NOTED THAT THE FALL IN GP RATE VIS--VIS THE EAR LIER YEAR WAS NOT VERY SIGNIFICANT AND WAS TO BE EXTENT OF 0.09% ONLY THAT TOO ON HUGE TURNOVER OF RS.46.68 CRORES AGAINST 46.53 CRORES IN IMMEDIATELY PRECEDIN G YEAR. FURTHER STILL THE GP RATE DISCLOSED AT 9.69% WAS HIGHER COMPARED TO GP RATE OF 9.41% ON LOWER TURNOVER OF RS.39.88 CRORES IN THE A.Y. 2003-04. TH E ASSESSEE CONTENTION THAT A SIGNIFICANTLY HIGHER QUANTITY OF TEA WAS PURCHASED FROM OUTSIDE AT 8.44 LAKHS KG AS AGAINST 4.60 KG IN IMMEDIATELY PRECEDING YEAR LEADING TO INCREASE IN FREIGHT AND LABOUR CHARGES IS ALSO REQUIRED TO BE GIVEN DUE CONSIDERATION. HENCE ON OVERALL CONSIDERATION OF TH E FACTS AND CIRCUMSTANCES OF CASE THE GP ADDITION MADE BY THE AO AT 4.07 LAKHS IS DIRECTED TO BE RESTRICTED TO RS.2 LAKHS. 48. THE FINDINGS RECORDED BY THE LD. CIT(A) HAS NOT B EEN CONTROVERTED WITH REGARD TO INCREASE IN FREIGHT AND LABOUR CHARGES DURING THE YEAR RESULTING IN MARGINAL DECLI NE IN GROSS -: 72: - 72 PROFIT RATE. ACCORDINGLY WE CONFIRM THE ACTION OF THE CIT(A) FOR RESTRICTING THE GROSS PROFIT ADDITION OF RS. 2 LAKH S. 49. WITH REGARD TO THE SHORTAGE CLAIMED AT 61 558 KGS. ON TOTAL SALES OF 40 74 739 KGS. RESULTING INTO SH ORTAGE AT 1.498 % ONLY. AS THIS SHORTAGE WAS WITHIN THE NORMS AS DISCUSSED HEREINABOVE I.E. 1.5 % WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANC E ON ACCOUNT OF SHORTAGE. 50. WITH REGARD TO DISALLOWANCE OF PACKING EXPENSES AS DISCUSSED BY US HEREINABOVE IN THE ASSESSMENT YEAR 2004-05 WE DIRECT THE AO TO ALLOW PACKING EXPENSES AT RS. 0 .80 PER KG. WE DIRECT ACCORDINGLY. A.Y. 2007-08 51. IN THE ASSESSMENT YEAR 2007-08 COMMON GROUND RAISED BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF SHORTAGE AND PACKING EXPENSES KEEPING IN VIEW OUR DETAILED OBSERVATION MADE IN THE ASSESSMENT YEAR 2004-05 WE DIRECT THE AO TO ALLOW PACKING EXPENSES @ 0.80 PS PER KG. AND SHORTAGE AT 1.5 %. WE DIRECT ACCORDINGLY. -: 73: - 73 52. IN THE RESULT THE APPEAL OF THE ASSESSEE AND REVENUE IS ALLOWED IN PART IN TERMS INDICATED ABOVE . I.T.A.NOS. 179 & 252/IND/2010 : 53. ASSESSEE IN THE INSTANT CASE IS SISTER CONCERN OF M/S. GHANSHYAMDAS & CO. DURING THE YEAR THE ONLY GRIEVA NCE OF BOTH THE ASSESSEE AND REVENUE RELATES TO DISALLOWAN CE OF BROKERAGE PAYMENT TO M/S. ANIL ENTERPRISES. 54. THE FACTS IN BRIEF ARE THAT DURING THE RELEVANT PERIOD THE ASSESSEE WAS A CONSIGNEE AGENT OF M/S. GOODRICK GROUP LTD. AND FEW OTHER COMPANIES AND RECEIVED COMMISSION FROM THESE COMPANIES. IT WAS ALSO EXPLAINED THAT GOODS RECEIVED ON CONSIGNMENT ARE UNLOADED AT THE GODOWN OF M/S. GHANSHYAMDAS & CO. WHICH IS ITS SISTER CONCERN. IT WAS ALSO STATED THAT TH E FIRM DID NOT HAVE ANY GODOWN OF ITS OWN AND IT SOLELY WORKS FOR M/S. GHAMSHYAMDAS & CO. AND ALL ITS CONSIGNMENT SALES WERE MADE TO M/S. GHANSHYAMDAS -: 74: - 74 & CO. ONLY AND IT ALSO RECEIVED DEBTORS INTEREST AND OTHER INTEREST FROM M/S. GHANSHYAMDAS & CO. 55. IN COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT COMMISSION AMOUNT REFLECTED IN P & L A/ C AT RS.48 58 448/- INCLUDED THE AMOUNT OF RS.39 04 966/- AS COMMISSION FROM GOODRICK GROUP LTD. THE AO FURTHER NOTICED THAT AN AMOUNT OF RS.18 22 728/- WAS DEBITED ON ACCOUNT OF BROKERAGE PAID TO M/S. ANIL ENTERPRISES KOLKATA. THE ASSESSEE WAS ACCORDINGLY REQUIRED TO SUBSTANTIATE THE CLAIM EXPLAINING THE BUSINESS EXPEDIENCY OF SUCH PAYMENT AS ASSESSEE WAS ADMITTEDLY WORKING AS CONSIGNEE AGENT OF M/S. GOODRICK GROUP LTD. THE ASSESSEE WAS ALSO REQUIRED TO PRODUCE THE COPY OF AGREEMENT OF M/S. GOODRICK GROUP LTD. WITH OTHER COMPANIES AND M/S. ANIL ENTERPRISES. THE AO HAS FURTHER NOTICED THAT THE ASSESSEE FAILED TO GIVE COPY OF REQUISITE DOCUMENTS AND -: 75: - 75 ONLY FILED A COPY OF AGENCY AGREEMENT WHICH WAS STATED TO BE MADE ON 2.4.04 PER LETTER DATED 22.12.06. THE AO HAS NOTED THAT SUCH AGREEMENT WAS NOT PROPERLY EXECUTED AND IN ANY CASE WAS NOT RELEVANT FOR THE AY UNDER CONSIDERATION HAVING BEEN EXECUTED AFTER THE CLOSE OF RELEVANT FINANCIAL YEAR. TO VERIFY THE CORRECTNESS OF THE ASSESSEES CLAIM THE AO ISSUED LETTER U/S 133(6) DATED 19.12.06 TO M/S. ANIL ENTERPRISES KOLKATA REQUIRING IT TO FILE DETAILS OF BROKERAGE COPY OF ACCOUNTS AGREEMENT AND DETAILS OF INCOME TAX ASSESSMENT. NO REPLY WAS RECEIVED BY THE ASSESSING OFFICER DIRECTLY AND ONLY COPY OF REPLY FAXED BY THE AFORESAID PARTY TO ASSESSEE BEARING DATED 23.12.06 WAS FILED BEFORE AO IN WHICH ADDRESS AND PAN WERE GIVEN BUT ACCORDING TO AO NO OTHER DETAILS CALLED FOR HIM WERE FURNISHED. THE ASSESSEE ALSO FILED A PHOTOCOPY OF UNDATED LETTER FROM THE SAID PARTY RAISIN G -: 76: - 76 BILL OF THE AMOUNT OF RS. 18 22 708/- FOR SUPPLY AND SERVICING AND GOODRICKE TEA INCLUDING RECEIPT OF TDS CERTIFICATE WITH CHEQUES ON ACCOUNT OF SANGAM TEA CENTRE. THE AO FURTHER NOTED THAT NO BROKERAGE WAS PAID TO THE AFORESAID PARTY TILL THE DATE OF FINALIZATION OF ASSESSMENT WHICH WAS ADMITTED BY THE ASSESSEE. HE ALSO NOTICED THAT THE ENTIRE AMOUNT OF BROKERAGE WAS CREDITED TO THE ACCOUNT OF THE AFORESAID PARTY BY SINGL E ENTRY ON 31.3.04. 56. IN VIEW OF THE ABOVE DISCUSSION THE AO DISALLOWED COMMISSION PAYMENT OF RS. 18.22 LAKHS TO M/S. ANIL ENTERPRISES. 57. IN THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSE E FILED DETAILED WRITTEN SUBMISSIONS DATED 29.2.08 TO GETHER WITH COPY OF PARTNERSHIP DEED AUDITED ACCOUNTS AUDIT R EPORT FOR THE YEAR UNDER CONSIDERATION AND LETTER DATED 1.4.0 1 ADDRESSED BY M/S. ANIL ENTERPRISES TO THE ASSESSEE. -: 77: - 77 58. BY THE IMPUGNED ORDER THE LD. CIT(A) RESTRICTED T HE DISALLOWANCE TO THE EXTENT OF 50 % AFTER HAVING THE FOLLOWING OBSERVATIONS :- 4.1 THE BROAD FACTS ARE THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR COMMISSION PAYMENT OF RS.18 22 708/- TO M/S. ANIL ENTERPRISES BEING COMMISSION PAYMENT ARRIVED AT @1% OF THE PURCHASE CONSIDERATION PAID BY THE ASSESSEE TO GOODRICKE GROUP LTD. OUT OF 2% COMMISSION RECEIVED. I T IS ALSO NOT DISPUTED THAT SUCH AMOUNT WAS NOT PAID TILL DECEMBER 2006 I.E. TILL THE DATE OF FINALIZATION OF THE ASSESSMENT BY THE AO AND HAS BEEN PAID SUBSEQUENTLY ONLY. BUT THE AO'S FINDING THAT ASSESSEE ONLY FILED A COPY OF COMMISSION DATED 2.4.04 IN SUPPORT OF SUCH COMMISSION PAYMENT IS NOT CORRECT AS THE LETTER DATED 1.4.01 ADDRESSED BY M/S. ANIL ENTERPRISES TO THE ASSESSEE INCORPORATING BROAD DETAILS ABOUT SUCH COMMISSION PAYMENT AND SUPPLY RELATED -: 78: - 78 SERVICES AND COMMITMENTS AGREED BY M/S. ANIL ENTERPRISES WAS VERY MUCH FILED BEFORE THE AO TOGETHER WITH THE FAX COPY OF THE LETTER RECEIVED FROM M/S. ANIL ENTERPRISES AS EVIDENT FROM ASSESSMENT RECORDS. IN THE FAX LETTER M/S. ANIL ENTERPRISES CATEGORICALLY STATED THAT THEY HAVE RAISED A COMMISSION BILL FOR YEAR ENDING 2003-04 ON 31.3.04 FOR RS.18 22 728/- FOR SUPPLY AND SERVICING OF M/S. GOODRICKE TEA AND ASSISTING THE ASSESSEE IN SELLING THE COMMODITIES IN THE MARKET AND ALSO ACKNOWLEDGING THE RECEIPT OF TDS CERTIFICATE OF RS.91 136/-. COPY OF BOTH THESE DOCUMENTS TOGETHER WITH LETTER DATED 22.12.06 WHEREBY SUCH LETTERS WERE FILED BEFORE AO ARE ENCLOSED WITH THE APPEAL ORDER AND COLLECTIVELY MARKED AS ANNEXURE A A1 AND A2 . THE ASSESSEE ALSO EXPLAINED BEFORE THE AO PER SUBSEQUENT LETTER DATED 27.12.06 THAT IN SUBSEQUENT YEAR NO SUCH COMMISSION WAS PAID AS THE COMMISSION RECEIVED BY THE ASSESSEE FROM -: 79: - 79 GOODRICKE GROUP LTD. ON PURCHASE WAS REDUCED FROM 2% TO 1%. 4.1.1 THUS IN THESE FACTS IT CANNOT BE DENIED THAT ASSESSEE WAS UNDER OBLIGATION TO PAY COMMISSION @1% TO M/S. ANIL ENTERPRISES FOR THE SERVICES TO BE RENDERED AS SPECIFIED IN LETTER DATED 1.4.01. THE MAIN SERVICES UNDERTAKEN BY M/S. ANIL ENTERPRISES WAS RENDERING ASSISTANCE IN MARKETING ACTIVITIES AND PURSUING CLIENTS PERTAINING TO QUALITY SHORTAGE AND OTHER RELATED MATERS WITH COMPANY AND ENSURE PROPER RECEIPT OF DRAFTS AND OTHER DOCUMENTS AND INSTRUMENTS SENT BY THE ASSESSEE COLLECTION OF TDS CERTIFICATE ETC. THE ASSESSEE HAS ALSO DEDUCTED TDS OF RS.91 536/- FROM SUCH COMMISSION PAYMENT. IN THESE FACTS THE AO'S ACTION IN DISALLOWING TOTAL COMMISSION PAYMENT CLAIMED MERELY FOR NON-PAYMENT OF THE SAME TILL THE TIME OF ASSESSMENT AND CREDIT OF THE SAME AMOUNT AT THE END OF THE YEAR CANNOT BE SAID TO BE JUSTIFIABLE IN ANY -: 80: - 80 MANNER. 4.1.2 HOWEVER THE ISSUE REMAINS WHETHER THE ENTIRE COMMISSION SO CLAIMED AT RS.18.23 LAKHS AGAINST RETURNED INCOME OF RS.16 60 924/- CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS KEEPING IN VIEW THE FACT THAT SUCH PAYMENT WAS ITSELF DISCONTINUED IN SUBSEQUENT YEARS WHICH IN A WAY SIGNIFIES THAT THE ASSESSEE WAS ABLE TO CARRY OUT HIS BUSINESS ACTIVITIES WITHOUT THE SERVICES AND ASSISTANCE OF M/S. ANIL ENTERPRISES IN SUBSEQUENT YEARS. IN THE AGREEMENT / LETTER DATED 1.4.05 THE BROAD SERVICES UNDERTAKEN WERE RELATED TO LIASON OF THE ASSESSEE FIRM WITH GOODRICKE GROUP LTD AND PURSUING WITH GOODRICKE TEA FOR THE ISSUES PERTAINING TO PAYMENT AND DISPATCH OF GOODS ETC. NO EVIDENCE HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE TO ESTABLISH THE FACT THAT ANY SIGNIFICANT HELP WAS RENDERED BY M/S. ANIL ENTERPRISES IN THE MARKETING OF PRODUCT FOR THE AREA OF OPERATION OF THE -: 81: - 81 ASSESSEE FIRM I.E. M.P. FURTHER NO EVIDENCE HAVE BEEN BROUGHT ON RECORD TO THE EFFECT THAT M/S. ANIL ENTERPRISES HAD ANY INFRASTRUCTURE OR SET-UP IN MP SO AS TO BE OF ANY ASSISTANCE TO THE ASSESSEE IN MARKETING OF ITS PRODUCT IN M.P. THE CORRESPONDENCE OF THE ASSESSEE FIRM WITH M/S. ANIL ENTERPRISES PRODUCED ON RECORD ALSO RELATE MAINLY TO DISPATCH OF GOODS AND PAYMENTS AND THERE IS NO CORRESPONDENCE OR EVIDENCE IN SUPPORT OF ANY ASSISTANCE IN MARKETING. 4.1.3 IN THESE CIRCUMSTANCES THE ENTIRE SIZEABLE COMMISSION OF RS.18.23 LAKHS WHICH WAS IN FACT MORE THAN THE NET PROFIT EARNED BY THE ASSESSEE AS PER RETURN INCOME AT RS.16.61 LAKHS CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS. IN ANY CASE IT IS SETTLED POSITION OF LAW THAT THE ONUS LIES ON THE ASSESSEE TO ESTABLISH THAT THE AMOUNT OF EXPENSES CLAIMED WERE FULLY JUSTIFIED AND WERE ADMISSIBLE AS BUSINESS -: 82: - 82 EXPENSES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IN VIEW OF THE ABOVE FACTUAL POSITION DISCUSSED THE ASSESSEE CANNOT DRAW ANY SUPPORT FROM THE VARIOUS DECISIONS CITED IN WRITTEN SUBMISSIONS AS THE FACTS OF THE PRESENT CASE ARE CLEARLY DISTINGUISHABLE TO THE FACTS NOTICED IN SUCH REPORTED DECISIONS. IT IS ALSO NOT BEING HELD IN ANY MANNER THAT THE ENTIRE COMMISSION PAYMENT WAS NOT ADMISSIBLE AS DEDUCTION. THE ISSUE INVOLVED IS WHETHER THE ENTIRE AMOUNT WAS PAID CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS. 4.1.4 NOW COMING TO THE DECISION OF HON'BLE ITAT IN THE CASE OF M/S. SHIV SUPARI STORES IT IS AGAIN NOTICED THAT THE FACTS ARE CLEARLY DISTINGUISHABLE AS THERE WAS SUBSTANTIAL JUMP IN THE TURNOVER FROM RS.8 CRORES TO RS.18 CRORES IN THE CASE OF THE ASSESSEE BEFORE TRIBUNAL AND THE AGENT WAS MAINLY NEEDED FOR HELPING THEM IN KEEPING CHECK -: 83: - 83 ON QUALITY OF GOODS PROCURED FROM MANGALORE AND THE COMMISSION PAYMENT WAS FOUND TO BE NOMINAL. IN THE CASE OF THE ASSESSEE THE AGENT M/S. ANIL ENTERPRISES HAD NO ROLE IN QUALITY CHECKING OF GOODS PROCURED AS THE ASSESSEE WAS DEALING IN BRANDED PRODUCTS. SO ALSO THERE IS NOTHING ON RECORD TO ESTABLISH THAT ON ACCOUNT OF SUCH COMMISSION PAYMENT THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER OF THE ASSESSEE NOR IT CAN BE SAID THAT SUCH COMMISSION PAYMENT WAS NOMINAL AS IT EVEN EXCEEDED THE NET PROFIT RETURNED BY THE ASSESSEE AND THE ASSESSEE PARTED WITH 50% OF THE COMMISSION RECEIVED FROM GOODRICKE GROUP LTD. THOUGH THE ENTIRE MARKETING INFRASTRUCTURE WAS SET UP BY THE ASSESSEE FIRM ITSELF. 4.1.5 HENCE ON OVERALL CONSIDERATION OF THE FACT AND CIRCUMSTANCES OF THE CASE -: 84: - 84 IN VIEW OF THE ABOVE DISCUSSION IT IS HELD THAT ENTIRE COMMISSION PAYMENT CANNOT BE HELD TO BE ADMISSIBLE DEDUCTION AS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND ON OVERALL CONSIDERATION 50% OF SUCH AMOUNT IS DIRECTED TO BE ALLOWED AT RS.9 11 364 AND BALANCE DISALLOWANCE IS CONFIRMED BEING NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 59. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSEE WAS EARNING COMMISSIO N INCOME FROM GOODRICKE GROUP LIMITED IN RESPECT OF SALES EF FECTED THROUGH ITS SISTER CONCERNS M/S. GHANSHYAMDAS & COM PANY. DURING THE YEAR THE ASSESSEE HAS CLAIMED A SUM OF RS. 18 22 728/- ON ACCOUNT OF BROKERAGE/COMMISSION PAYA BLE TO M/S. ANIL ENTERPRISES. CONTENTION OF THE ASSESSEE W AS THAT COMMISSION WAS PAID IN THE NORMAL COURSE OF BUSINES S. -: 85: - 85 HOWEVER THE AO FOUND THAT SINCE THE ASSESSEE WAS UNDERTAKING SALES ONLY TO ITS SISTER CONCERN AND WA S HAVING ALREADY AN AGENCY AGREEMENT WITH M/S. GOODRICKE GRO UP LIMITED THERE IS NO REASON FOR INCURRING ANY OF SU CH EXPENDITURE ON ACCOUNT OF BROKERAGE/COMMISSION. NO AGREEMENT WITH REGARD TO THE SERVICES RENDERED DURI NG THE YEAR BY M/S. ANIL ENTERPRISES COULD BE FURNISHED. EVEN T O VERIFY THE CORRECTNESS OF ASSESSEES CLAIM THE AO ALSO ISSUED NOTICE U/S 133(6) TO M/S. ANIL ENTERPRISES REQUIRING IT TO FIL E COPY OF BROKERAGE ACCOUNTS AGREEMENT AND DETAILS OF INCOME TAX ASSESSMENT. HOWEVER NO REPLY WAS RECEIVED BY THE A SSESSING OFFICER FROM M/S. ANIL ENTERPRISES. HOWEVER THE AS SESSEE HAS FILED A PHOTOCOPY OF LETTER ALLEGED TO BE FAXED BY M/S. ANIL ENTERPRISES. AS PER AO EVEN IN THIS FAXED LETTER WHICH WAS ALLEGED BY THE ASSESSEE TO HAVE DIRECTLY BEEN SENT TO HIM THERE WAS ONLY MENTION OF ADDRESS AND PAN NO. OF M/S. ANI L ENTERPRISES NO OTHER DETAILS WERE FURNISHED AS ASK ED BY THE ASSESSING OFFICER IN HIS LETTER U/S 133(6). IT WAS ALSO FOUND THAT ACTUALLY NO BROKERAGE WAS PAID TO M/S. ANIL EN TERPRISES TILL THE DATE OF FINALIZATION OF ASSESSMENT AND THA T ENTIRE -: 86: - 86 AMOUNT OF BROKERAGE WAS CREDITED TO THE ACCOUNT OF M/S.ANIL ENTERPRISES BY WAY OF SINGLE ENTRY ON 31.3.2004. AC CORDINGLY CLAIM OF COMMISSION EXPENDITURE WAS FOUND TO BE BOG US CONSEQUENTLY ADDITION WAS MADE BY THE ASSESSING OFF ICER BY DISALLOWING COMMISSION PAYABLE. HOWEVER THE LD. CI T(A) DELETED 50 % OF THE DISALLOWANCE JUST BY STATING TH AT SOME OF THE SERVICES WERE RENDERED BY ANIL ENTERPRISES. HOW EVER NO MATERIAL WAS REFERRED BY THE LD. CIT(A) FOR ARRIVI NG TO SUCH CONCLUSION. EVEN VARIOUS FINDING RECORDED BY THE AS SESSING OFFICER WITH REGARD TO GENUINENESS OF CLAIM OF COMM ISSION EXPENDITURE HAS BEEN CONTROVERTED BY THE LD. CIT(A) . IT APPEARS THAT ENTIRE TRANSACTION OF PAYMENT OF COMMISSION/BROKERAGE WAS FOUND TO BE NON-GENUINE I NSOFAR AS NO SERVICES WAS REQUIRED BY THE ASSESSEE IN QUES TION SINCE IT WAS HAVING DIRECT AGENCY AGREEMENT WITH M/S. GOO DRICKE GROUP WHICH WAS SUPPLYING THE GOODS AND ENTIRE GOO DS WERE DIRECTLY SOLD THROUGH SISTER CONCERN. KEEPING INTO VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE I NTEREST OF JUSTICE WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH AND ASSESSEE IS DIRECTED TO FURNISH FULL DETAILS -: 87: - 87 OF THE SERVICES RENDERED BY AGENT AND CO-OPERATE WI TH THE AO FOR DETERMINING THE GENUINENESS OF THE TRANSACTION VIS--VIS SERVICES RENDERED BY M/S. ANIL ENTERPRISES FOR EARN ING SUCH COMMISSION INCOME. A.O. TO ALSO VERIFY ACTUAL PAYME NT OF COMMISSION TO ANIL ENTERPRISES. WE DIRECT ACCORDING LY. 60. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE A ND REVENUE ARE ALLOWED IN PART FOR STATISTICAL PURPOSE S. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH MARCH 2011. CPU* 9.283