Prime Ceramics Pvt.Ltd.,, v. The Income tax Officer,Ward-4(2),, Baroda

ITA 2934/AHD/2008 | 1997-1998
Pronouncement Date: 24-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 293420514 RSA 2008
Assessee PAN AABCP3755D
Bench Ahmedabad
Appeal Number ITA 2934/AHD/2008
Duration Of Justice 2 year(s) 4 month(s) 11 day(s)
Appellant Prime Ceramics Pvt.Ltd.,,
Respondent The Income tax Officer,Ward-4(2),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 24-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 24-12-2010
Date Of Final Hearing 09-12-2010
Next Hearing Date 09-12-2010
Assessment Year 1997-1998
Appeal Filed On 12-08-2008
Judgment Text
IN IN IN IN THE INCOME TAX APPELLATE TRIBUNAL THE INCOME TAX APPELLATE TRIBUNAL THE INCOME TAX APPELLATE TRIBUNAL THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AND AND AND AND SHRI SHRI SHRI SHRI MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER MAHAVIR SINGH JUDICIAL MEMBER DATE OF HEARING 10-12-10: DRAFTED ON : 10-12-10 ITA NO. 2934 /AHD/ 2008 ASSESSMENT YEAR :1997-98 AND ITA.NOS.2951 TO 2954AHD/2008 (ASSESSMENT YEARS:2001-02 2002-03 2003- 04 AND 2005-06) PRIME CERAMICS PRIVATE LTD. AT & POST GAVASAD PADRA-JAMBUSAR ROAD TALUKA PADRA DISTRICT VADODARA. VS. INCOME TAX OFFICER WARD 4(2) AAYAKAR BHAVAN NEAR RACE COURSE CIRCLE VADODARA. PAN/GIR NO. : AABCP 3755D (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.N. SOPARKAR SR. ADVOCATE. RESPONDENT BY: SHRI ROHIT MEHR A D.R. O R D E R O R D E R O R D E R O R D E R PER BENCH:- THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST TH E ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III B ARODA DATED 11-6-2008 FOR ASSESSMENT YEAR 1997-98 DATED 13-6-2008 FOR A.Y. 2 001-02 DATED 11-6-2008 FOR A.Y. 2002-03 DATED 13-6-2008 FOR A.Y. 2003-04 AND DATED 11-6-2008 FOR A.Y. 2005-06 RESPECTIVELY. 2. GROUND NO.1 OF APPEAL OF THE ASSESSEE FOR A.Y.1997- 98 READS AS UNDER: 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING THE CASH CREDIT OF `.6 L ACS MADE UNDER SECTION 68 OF THE ACT BY LEARNED ASSESSING OFFICER WITHOUT PROPERLY APPRECIATING DIRECTIONS OF THE HON'BLE ITAT WHEN LEARNED ASSESSI NG OFFICER WAS SPECIFICALLY DIRECTED TO GRANT FRESH OPPORTUNITY TO THE APPELLANT TO PRODUCE THE CREDITORS AND ON FAILURE TO DO SO TO IS SUE SUMMONS TO THE CREDITORS TO AVAIL THEIR CONFIRMATION OF HAVING GIV EN ADVANCES TO THE APPELLANT. LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS NOT APPRECIATED THE FACT THAT DESPITE THE CHANGE IN THE OWNERSHIP OF THE PAGE 2 OF 17 APPELLANT COMPANY THE NEW MANAGEMENT MADE SINCERE EFFORTS TO PRODUCE THE CREDITORS AND ON THEIR FAILURE TO DO SO LEARNED ASSESSING OFFICER NEITHER ACCEDED TO THE DIRECTIONS OF THE HO N'BLE ITAT NOR HEEDED TO THE REQUEST OF THE APPELLANT TO ISSUE SUMMONS TO THE CREDITORS BUT PROCEEDED TO ADD THE ENTIRE AMOUNT OF CASH CREDIT T O THE INCOME OF THE APPELLANT. THE ADDITION CONFIRMED BY BOTH THE LOWER AUTHORITIES IN TOTAL CONTRAVENTION OF THE DIRECTIONS OF THE HON'BLE ITAT IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS AND REQUIRES TO B E QUASHED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED AS SESSING OFFICER MADE ADDITION OF `.6 LACS AS UNEXPLAINED CASH CREDIT AS THE ASSESSEE COULD NOT ESTABLISH THE IDENTITY CREDITWORTHINESS OF THE LOA N CREDITORS AND GENUINENESS OF THE TRANSACTIONS. 4. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFICER OBSERVI NG THAT THE TRIBUNAL WHILE RESTORING THE MATTER TO THE LEARNED ASSESSING OFFIC ER FOR VERIFICATION SPECIFICALLY NOTED THE ASSURANCE GIVEN BY THE ASSES SEE THAT IT WAS READY AND WILLING TO PRODUCE THE CREDITORS BEFORE THE LEARNED ASSESSING OFFICER. IN SPITE OF OPPORTUNITY HAVING BEEN GRANTED BY THE TRIBUNAL THE ASSESSEE FAILED TO PRODUCE THE CREDITORS BEFORE THE LEARNED ASSESSING OFFICER. THE ASSESSEE ALSO FAILED TO PRODUCE ANY CREDIBLE EVIDENCE TO SHOW THAT THE IMPU GNED TRANSACTIONS WERE GENUINE. HE FURTHER OBSERVED THAT THE OBSERVATION OF THE TRIBUNAL THAT THE LEARNED ASSESSING OFFICER WAS FREE TO ISSUE SUMMONS TO THE LOAN CREDITORS DID NOT ABSOLVE THE ASSESSEE OF ITS OBLIGATION TO ESTAB LISH THE THREE VITAL INGREDIENTS OF THE CASH CREDITS. 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE SUBMITTED THAT THE LEARNED ASSESSING OFFICER FAILED TO CARRY OUT T HE SPECIFIC DIRECTION OF THE TRIBUNAL TO ISSUE SUMMONS TO THE LOAN CREDITORS FOR VERIFICATION OF THE CASH CREDITS TAKEN BY THE ASSESSEE DURING THE YEAR. THER EFORE THE ADDITION MADE WITHOUT CARRYING OUT THE DIRECTION OF THE TRIBUNAL WAS REQUIRED TO BE DELETED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE ADDITION WAS MADE UN DER SECTION 68 OF `.6 LACS. IN PAGE 3 OF 17 THE FIRST ROUND THE TRIBUNAL RESTORED THE MATTER BA CK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS:- 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THEIR RIVAL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE U S THAT THE ASSESSEE IS READY AND WILLING TO PRODUCE THE CREDITORS BEFOR E THE ASSESSING OFFICER IF AN OPPORTUNITY IS GIVEN. WE THEREFORE SET ASID E THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AS WEL L AS OF THE ASSESSING OFFICER AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO REPROCESS THE ISSUE. THE ASSESSEE IS DIR ECTED TO PRODUCE THE CREDITORS BEFORE THE ASSESSING OFFICER AND IF REQUI RED THE ASSESSING OFFICER MAY ISSUE SUMMONS TO THE CREDITORS. 8. IT IS OBSERVED THAT THE ADDITION OF THE SAME AMO UNT WAS MADE AGAIN ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE CREDITORS FOR VERIFICATION. THE ONLY CONTENTION OF THE LEARNED AUTHORISED REPRE SENTATIVE OF THE ASSESSEE IS THAT THE TRIBUNAL EMPOWERED THE LEARNED ASSESSIN G OFFICER TO ISSUE SUMMONS UNDER SECTION 131 OF THE ACT AND THEREFORE THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED IN DRAWING ADVERSE INFERE NCE AGAINST THE ASSESSEE WITHOUT EXERCISING THAT POWER GIVEN BY THE TRIBUNAL . IN THE ABOVE CIRCUMSTANCES WE FIND THAT THE LEARNED ASSESSING OF FICER HAS NOT ISSUED SUMMONS AS WELL AS THE ASSESSEE ALSO HAS NOT PRODUC ED THE CREDITORS AS DIRECTED BY THE TRIBUNAL. THUS BOTH THE PARTIES FAI LED TO CARRY OUT THE DIRECTIONS OF THE TRIBUNAL. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH THE SAME DIRECTIONS AS CONTAINED IN EARLIER ORDER OF TH E TRIBUNAL AS QUOTED ABOVE. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. 9. THE GROUND NO.2 OF ASSESSEES APPEAL FOR A.Y. 19 97-98 READS AS UNDER:- 2 CONFIRMING LEVY OF INTEREST UNDER SECTION 234A 234B AND 234C OF THE ACT IS NOT JUSTIFIED. 10. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THE ABOVE GROUND OF APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 11. GROUND NO.3 OF ASSESSEES APPEAL FOR A.Y. 1997- 98 READS AS UNDER:- PAGE 4 OF 17 3. INITIATION OF PENALTY U/SD. 271(1)(C) OF THE A CT IS NOT JUSTIFIED. 12. WE HOLD THAT THIS GROUND OF APPEAL OF THE ASSES SEE IS PREMATURE AND THE SAME IS ACCORDINGLY DISMISSED. 13. GROUND NO.1 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN ENHANCING THE AMOUNT OF DISALLOWANC E OUT OF DEFERRED REVENUE EXPENDITURE CLAIMED BY THE APPELLANT THAN T HE AMOUNT DISALLOWED AND ADDED BY LEARNED ASSESSING OFFICER T O THE INCOME IN THE IMPUGNED ASSESSMENT PROCEEDINGS. LEARNED COMMISSION ER OF INCOME TAX (APPEALS) WITHOUT APPRECIATING THE SUBMISSIONS EVIDENCE AND CONTENTION RAISED BY THE APPELLANT SIMPLY RELYING O N HIS DECISION FOR A.Y. 2002-03 ENHANCED THE DISALLOWANCE FROM `.1 19 950/- TO `.1 40 648/-. THIS ADJUDICATION BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AGAINST PRINCIPLES OF NATURAL JUSTICE OUGHT TO BE Q UASHED. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED AMORTIZATION OF THE EXPENSES AMOUNTING TO `.1 44 827/- BEING 1/5 TH OF `.7 24 135/-. THE LEARNED ASSESSING OFFICER ALLOWED AMORTIZATION OF EXPENSES OF ONLY `.27 077/- THEREBY RESULTING IN DISALLOWANCE OF `.1 19 950/-. 15. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) OBSERVED THAT THIS ISSUE HAS BEEN DECIDED BY HIM IN APPEAL N OI.CAB/III/43/05-06 FOR A.Y. 2002-03 VIDE ORDER DATED 11-6-2008 WHERE IT HAS BEE N HELD THAT THE AMOUNT ELIGIBLE TO BE AMORTIZED UNDER SECTION 35D WAS `.4 178/- BEING 1/5 TH OF `.20 890/-. THUS THE DISALLOWANCE SHOULD HAVE BEEN OF `.1 40 5648/- INSTEAD OF `.1 19 750/-. HENCE HE ENHANCED THE DISALLOWANCE TO `.1 40 649/-. 16. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ORDER OF THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED AND THAT THE ASSESSEE HAS N O GRIEVANCE AGAINST THE SAME. ACCORDINGLY THIS GROUND OF APPEAL OF THE ASSE SSEE IS DISMISSED. 17. GROUND NO.2 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE MADE BY LEA RNED ASSESSING OFFICER OF `.33 000/- OUT OF RAW MATERIAL TRANSPORT ATION EXPENSES WITHOUT APPRECIATING THE FACT THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED AND NO ADVERSE REMARKS HAVE BEEN NOTED BY T HE AUDITORS IN THE TAX AUDIT REPORT SUBMITTED ALONG WITH THE RETURN OF INCOME SINCE ALL THE PAGE 5 OF 17 EXPENSES HAVE BEEN PROPERLY VOUCHED FOR BY THE APPE LLANT. THIS DISALLOWANCE CONFIRMED BY LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) OUGHT TO BE DELETED. 18. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER DISALLOWED `.33 000/- OUT OF RAW MATERIAL TRANSPORT ATION ON THE GROUND THAT NO SUPPORTING DOCUMENTS OR EVIDENCE WAS FURNISHED WITH REGARD TO THE CLAIM OF EXPENSES. 19. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS WERE AUDITED AND TAX AUDIT REPORT WAS FILED ALONG WITH THE RETURN OF INCOME. N O DISCREPANCY HAS BEEN POINTED OUT BY THE TAX AUDITOR. IT WAS FURTHER SUBM ITTED THAT THE ENTIRE EXPENSES WERE FULLY VOUCHED. 20. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFICER BY OBSERVING THAT EVEN AT THE APPELLATE STA GE THE ASSESSEE WAS UNABLE TO FURNISH ANY BILLS OR OTHER DOCUMENTS TO SHOW THA T THE EXPENSES WERE ACTUALLY INCURRED. HENCE THE ASSESSEE HAS NOT SUFFI CIENTLY ESTABLISHED THE INCURRING OF EXPENDITURE ON TRANSPORTATION AMOUNTIN G TO `.33 000/-. 21. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE LOWER AUTHORITIES DISALL OWED `.33 000/- OUT OF TRANSPORTATION EXPENSES INCURRED ON RAW MATERIALS A S NO SUPPORTING DOCUMENTS OR EVIDENCES WERE FURNISHED. EVEN BEFORE US NO EVID ENCE HAS BEEN FILED SUCH AS BILLS ETC. TO SHOW THAT THE EXPENDITURE WAS INCU RRED BY THE ASSESSEE AND NOR ANY REASON WAS ADDUCED FOR INABILITY TO PRODUCE THE RELEVANT VOUCHERS. IN ABSENCE OF SUCH AN EVIDENCE HAVING BEEN BROUGHT ON RECORD BY THE ASSESSEE IN OUR CONSIDERED OPINION THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS FULLY JUSTIFIED IN CONFIRMING THE ADDITION OF `.33 000/- MADE BY THE LEARNED ASSESSING OFFICER. WE THEREFORE DISMISS THIS GROUN D OF APPEAL OF THE ASSESSEE. 22. GROUND NO.3 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- 3. INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT JUSTIFIED. PAGE 6 OF 17 23. WE HOLD THAT THIS GROUND OF APPEAL OF THE ASSES SEE IS PREMATURE AND THE SAME IS ACCORDINGLY DISMISSED. 24. GROUND NO.4 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234A 234B 234C AND 234D OF THE ACT. 25. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THE ABOVE GROUND OF APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 26. GROUND NO.1 OF ASSESSEES APPEAL FOR A.Y. 2002- 03 READS AS UNDER:- 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF `.7 030/- OU T OF TOTAL ADDITION MADE BY LEARNED ASSESSING OFFICER OF `.62 433/- ON ACCOU NT OF DIFFERENCE IN THE VALUE OF THE CLOSING STOCK. THE ADDITION CONFIRMED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THOUGH ACCEPTI NG PRINCIPALLY THE ARGUMENT OF THE APPELLANT OF QUANTITY TALLY OUGHT T O BE DELETED. 27. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING CERAMIC GLAZED MIXTURE OF GLASS FRIT. THE LEARNED ASSESSING OFFICER NOTED THAT CLOSING STOCK OF RAW M ATERIAL DISCLOSED IN THE BALANCE SHEET WAS `.21 83 653/-. THE LEARNED ASSESS ING OFFICER NOTED THAT THE TOTAL VALUE OF RAW MATERIALS AS PER DETAILS FURNISH ED BY THE ASSESSEE WAS `.21 21 220/-. THUS THERE WAS DISCREPANCY OF `.62 4 33/- IN THE FIGURE OF CLOSING STOCK. SINCE THE ASSESSEE COULD NOT GIVE ANY EXPLA NATION FOR THE DIFFERENCE AMOUNT OF `.62 433/- THE LEARNED ASSESSING OFFICER ADDED THE SAME AS UNACCOUNTED SALE RECEIPTS. 28. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE SUBMITTED THAT THE CLOSING STOCK SHOWN IN THE BALANCE SHEET INCLUDED COST OF RAW MATERIALS AND TRANSPORTATION COST WHERE AS IN THE DETAILS SUBMITTED DURING THE ASSESSMENT TRANSPORTATION COST WAS NOT I NCLUDED IN THE RAW MATERIAL COST. HENCE THE OBSERVATION OF THE LEARNED ASSESSIN G OFFICER THAT NO EXPLANATION WAS FURNISHED BY THE ASSESSEE FOR THE D IFFERENCE AMOUNT OF `.62 433/- BEING DIFFERENCE BETWEEN THE VALUE OF CL OSING STOCK AS PER BALANCE PAGE 7 OF 17 SHEET AND THE VALUE OF CLOSING STOCK AS PER DETAILS FILED BEFORE THE LEARNED ASSESSING OFFICER WAS NOT CORRECT. 29 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE FAILED TO RECONCILE THE TWO FIGURES OF CLOSING STOCK. THE DETAILS OF TRANSPORTA TION CHARGES WERE NOT FILED. HE FURTHER OBSERVED THAT THE CLOSING STOCK IN THE BALA NCE SHEET WAS MORE THAN THE DETAILS FILED DURING THE ASSESSMENT AND HENCE NO AD DITION CAN BE MADE ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. HOWEVE R HE HELD THAT GROSS PROFIT ATTRIBUTABLE TO UNACCOUNTED SALES COULD BE ADDED AN D BY APPLYING THE GROSS PROFIT RATE OF 11.26% TO THE DIFFERENCE STOCK OF `. 62 433/-. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED ADDI TION OF `.7 030/-. 30. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT AFTER ARRIVING AT THE FINDING BY THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) THAT THERE WAS OVER VALUATION OF THE S TOCK IN THE BALANCE SHEET HE WAS NOT JUSTIFIED IN SUSTAINING ADDITION OF GROS S PROFIT ON UNACCOUNTED SALES AT `.7 030/-. 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 32. AFTER HEARING THE RIVAL SUBMISSIONS WE FIND THA T THE ADDITION OF `.62 433/- WAS MADE BY THE LEARNED ASSESSING OFFICER ON THE GR OUND THAT THE STOCK SHOWN IN THE BALANCE SHEET WAS HIGHER BY THE SAID AMOUNT FROM THE DETAILS OF STOCK FILED AT THE ASSESSMENT PROCEEDINGS. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT AS THE STOCK DISCLOS ED IN BALANCE SHEET WAS HIGHER NO ADDITION COULD BE MADE ON ACCOUNT OF THIS DISCREPANCY. HOWEVER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SUSTAIN ED ADDITION OF `.7 030/- BY ASSUMING THAT STOCK OF `.62 433/- WAS SOLD OUTSI DE THE BOOKS OF ACCOUNT AND THEREFORE `.7 030/- REPRESENTED THE PROFIT ON SUCH SALE. WE FIND THAT THE ASSESSEE EXPLAINED BEFORE THE LOWER AUTHORITIES THA T THE DIFFERENCE IN VALUE WAS ON ACCOUNT OF NON INCLUDING OF TRANSPORTING CHA RGES IN THE DETAILS OF STOCK FILED DURING THE ASSESSMENT PROCEEDINGS. IT IS OBSE RVED THAT NO DISCREPANCY IN THE ABOVE EXPLANATION OF THE ASSESSEE COULD BE POIN TED OUT BY THE LOWER PAGE 8 OF 17 AUTHORITIES. FURTHER NO MATERIAL COULD BE BROUGHT O N RECORD TO SHOW ANY UNDISCLOSED STOCK WAS ACTUALLY SOLD BY THE ASSESSEE . IN THESE CIRCUMSTANCES IN OUR CONSIDERED OPINION LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) WAS NOT JUSTIFIED IN SUSTAINING ADDITION OF `.7 030/- ONLY ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS. WE THEREFORE DELETE THE ADDITION OF `.7 030/- AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 33. GROUND NO.2 FOR A.Y. 2002-03 READS AS UNDER:- 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN ENHANCING THE AMOUNT OF DISALLOWANC E OUT OF DEFERRED REVENUE EXPENDITURE CLAIMED BY THE APPELLANT THAN T HE AMOUNT DISALLOWED AND ADDED BY LEARNED ASSESSING OFFICER T O THE INCOME IN THE IMPUGNED ASSESSMENT PROCEEDINGS. LEARNED COMMISSION ER OF INCOME TAX (APPEALS) WITHOUT APPRECIATING THE SUBMISSIONS EVIDENCE AND CONTENTION RAISED BY THE APPELLANT FROM `.1 19 950/ - TO `. 1 40 648/-.THIS ADJUDICATION BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AGAINST PRINCIPLES OF NATURAL JUSTICE OUGHT TO BE QUASHED. 34. THE ISSUE AND FACTS INVOLVED IN THIS GROUND OF APPEAL ARE THE SAME AS IN GROUND NO.1 OF THE APPEAL FOR ASSESSMENT YEAR 2001- 02. FOR THE SAME REASONS AS GIVEN WHILE DISPOSING OFF GROUND NO.1 OF THE APP EAL FOR ASSESSMENT YEAR 2001-02 THIS GROUND OF APPEAL FOR THE YEAR UNDER C ONSIDERATION IS ALSO DISMISSED. 35. GROUND NO.3 OF A.Y. 2002-03 READS AS UNDER :- 3. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN REJECTING THE ALTERNATIVE CONTENTIO N OF THE APPELLANT FOR GRANTING DEPRECIATION ON CAPITAL EXPENSES INCURRED TOWARDS PROJECT COST THAT WAS NOT FORMING PART OF PRELIMINARY EXPENSES D ISALLOWED UNDER SECTION 35D OF THE ACT. 36. AT THE TIME OF THE HEARING LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE VERY FAIRLY CONCEDED THAT THIS GROUND MAY BE HELD AGAINST THE ASSESSEE. THEREFORE THIS GROUND OF APPEAL OF THE A SSESSEE IS DISMISSED. 37. GROUND NO.4 OF A.Y. 2002-03 READS AS UNDER:- 4. INITIATION OF PENALTY UNDER SECTION 271(1)(C) O F THE ACT IS NOT JUSTIFIED. 38. WE HOLD THAT THIS GROUND OF APPEAL OF THE ASSES SEE IS PREMATURE AND THE SAME IS ACCORDINGLY DISMISSED. PAGE 9 OF 17 39. GROUND NO.5 OF A.Y. 2002-03 READS AS UNDER:- 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234A 234B AND 234C OF THE ACT. 40. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THE ABOVE GROUND OF APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 41. GROUND NO.1 OF ASSESSEES APPEAL FOR A.Y.2003-0 4 READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF `.83 128 /- OUT OF TOTAL ADDITION MADE BY AO OF `.1 26 481/- ON ACCOUNT OF THE EXPENS ES PERTAINING TO THE PRIOR PERIOD. LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THOUGH THE EXPENDITURE P ERTAINED TO THE EARLIER YEARS THE LIABILITY FOR THE SAME CRYSTALLIZED DURIN G THE CURRENT YEAR AND HENCE THE ADDITION MADE OUGHT TO BE DELETED. 42. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER NOTED THAT THE EXPENSES OF `.1 26 481/- PERTAINED TO THE EARLIER YEARS AND THEREFORE DISALLOWED THE SAME. 43. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) THE ASSESSEE SUBMITTED THAT ALTHOUGH THE EXPENDITURE IN QUESTION PERTAINED TO THE EARLIER YEARS THE LIABILITY WAS CRYSTALLIZED DURING THE YEAR AND THEREFORE WAS PROVIDED DURING THE YEAR UNDER APPEAL. IT WAS SUBM ITTED THAT ONGC CHARGED INTEREST OF `.4 236/- FOR DELAYED PAYMENT MADE TO I T. SIMILARLY SALES TAX DEPARTMENT CHARGED INTEREST OF `.36 117/- FOR DELAY ED PAYMENT OF TAX. FURTHER PROFESSIONAL CHARGES FOR ISSUANCE OF COMPLIANCE CER TIFICATE OF `.3 000/- WAS PROVIDED IN THE YEAR UPON RECEIPT OF BILL ON 20-2-2 002 AS REGARDS OTHER DISALLOWANCE IT WAS SUBMITTED THAT THEY PERTAINED T O VARIOUS CONSULTANCY BILLS WHICH WERE RAISED DURING THE YEAR. 44. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT INTEREST PAYM ENT TO ONGC OF `.4 236/- AND FOR DELAYED PAYMENT OF TAX `. 36 117/- ARE COMP ENSATORY PAYMENTS FOR DELAY. INTEREST WAS DEMANDED BY ONGC BY DEBIT NOTE DATED 17-6-2002 AND PAGE 10 OF 17 SALES TAX DEMAND NOTICE WAS DATED 2-3-2003. THE PRO FESSIONAL CHARGES BILLS WERE RAISED DURING THE YEAR AND THEREFORE THE LIABI LITY CRYSTALLIZED DURING THE YEAR ITSELF. THEREFORE HE HELD THAT LEARNED ASSES SING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THIS AGGREGATE AMOUNT OF `.43 453/- AND DIRECTED THE LEARNED ASSESSING OFFICER TO DELETE THE SAME. FOR THE BALAN CE AMOUNT OF `.82 128/- THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD TH AT THE ASSESSEE HAS NOT GIVEN SATISFACTORY EXPLANATION TO SHOW THAT THE EXP ENSES COULD NOT HAVE BEEN PROVIDED IN THE EARLIER YEARS AND THAT THE LIABILIT Y CRYSTALLIZED FOR THE FIRST TIME DURING THE YEAR. ACCORDINGLY WE CONFIRM THE ADDITI ON OF `.83 128/-. 45. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHEREAS THE LEARNED DEPARTMENTAL REPRESENTATIVE SUP PORTED THE ORDERS OF THE LOWER AUTHORITIES. 46. AFTER HEARING THE RIVAL SUBMISSIONS WE FIND THA T ADDITION OF `.83 128/- OUT OF TOTAL ADDITION OF`.1 26 481/- WAS SUSTAINED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THE GROUND THAT THE ASSESSE E COULD NOT SHOW WHY NO PROVISION FOR THE EXPENSES WAS MADE IN EARLIER YEAR S AND THE LIABILITY FOR SAID EXPENSES CRYSTALLIZED DURING THE YEAR UNDER CONSIDE RATION. WE FIND THAT IT IS NOT IN DISPUTE THAT THE EXPENSES OF `.83 128/- PERTAINE D TO EARLIER YEARS. IN OUR CONSIDERED OPINION THE ASSESSEE SHOULD HAVE MADE PR OVISION FOR THE EXPENSES AS PER THE REGULARLY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING IN THE YEAR TO WHICH THE LIABILITIES PERTAIN TO. FURTHER THE ASSES SEE SHOULD HAVE BROUGHT EVIDENCE TO SHOW THAT ALTHOUGH NO PROVISION WAS MAD E FOR THE LIABILITIES PERTAINING TO EARLIER YEARS THEY HAVE BEEN CLAIMED IN THE YEAR UNDER CONSIDERATION AS THEY CRYSTALLIZED IN THE YEAR UNDE R CONSIDERATION. THEREFORE WE DO NOT FIND ANY GOOD AND JUSTIFIABLE TO INTERFER E WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 47 GROUND NO.2 OF A.Y. 2003-04 READS AS UNDER:- 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN ENHANCING THE AMOUNT OF DISALLOWANC E OUT OF DEFERRED REVENUE EXPENDITURE CLAIMED BY THE APPELLANT THAN T HE AMOUNT PAGE 11 OF 17 DISALLOWED AND ADDED BY LEARNED ASSESSING OFFICER T O THE INCOME IN THE IMPUGNED ASSESSMENT PROCEEDINGS. LEARNED COMMISSION ER OF INCOME TAX (APPEALS) WITHOUT APPRECIATING THE SUBMISSIONS EVIDENCE AND CONTENTION RAISED BY THE APPELLANT SIMPLY RELYING O N HIS DECISION FOR A.Y. 2002-03 ENHANCED THE DISALLOWANCE FROM `.1 19 950/- TO `.1 40 648/-. THIS ADJUDICATION BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AGAINST PRINCIPLES OF NATURAL JUSTICE OUGHT TO BE Q UASHED. 48. THE ISSUE AND FACTS INVOLVED IN THIS GROUND OF APPEAL ARE THE SAME AS IN GROUND NO.1 OF THE APPEAL FOR ASSESSMENT YEAR 2001- 02. FOR THE SAME REASONS AS GIVEN WHILE DISPOSING OFF GROUND NO.1 OF THE APP EAL FOR ASSESSMENT YEAR 2001-02 THIS GROUND OF APPEAL FOR THE YEAR UNDER C ONSIDERATION IS ALSO DISMISSED. 49. GROUND NO.3 OF A.Y. 2003-04 READS AS UNDER:- 3. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE MADE BY LEA RNED ASSESSING OFFICER OF LEGAL AND PROFESSIONAL FEES AMOUNTING TO `.4 69 359/- UNDER SECTION 40A(2)(B) OF THE ACT. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT APPRECIATED THE FACT THAT THE PAY MENT IS MADE TO THE TECHNICALLY QUALIFIED PERSON AND AN ENGINEER HAVING REQUISITE KNOWLEDGE OF THE INDUSTRY AND THE BUSINESS OF THE APPELLANT B ENEFITED FROM THE SAID CONSULTATION. LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) OUGHT TO HAVE ALLOWED THE DEDUCTION SINCE THE EXPENSES WERE PURELY INCURRED ON THE PRINCIPLES OF COMMERCIAL EXPEDIENCY. 50. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT IN THE YEAR UNDER APPEAL LEGAL AND PR OFESSIONAL FEES OF `.5 06 900/- WAS PAID AS COMPARED TO `.37 541/- IN THE IMMEDIATELY PRECEDING YEAR. HE FURTHER OBSERVED THAT TECHNICAL CONSULTANC Y OF `.5 LACS WERE PAID TO THE RELATIVES OF THE DIRECTOR VIZ. SHRI P. D. VACHH ANI AND SHRI H. K. VACHHANI. THE EXPLANATION OF THE ASSESSEE IS THAT FEES WERE P AID TO THESE TWO PERSONS FOR PROVIDING ADVICE AND GUIDANCE IN TECHNICAL MATTERS AND THAT THEY ARE EXPERIENCED AND QUALIFIED FOR THE SAME WAS NOT ACCE PTED BY THE LEARNED ASSESSING OFFICER. THEREFORE DIFFERENTIAL AMOUNT OF `.4 69 359/- WAS DISALLOWED AS INCREASE IN CONSULTANCY CHARGES OVER THE IMMEDIA TELY PRECEDING YEAR WAS CONSIDERED UNREASONABLE AND EXCESSIVE AND DISALLOWE D UNDER SECTION 40A(2)(B). 51. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED ASSESSING PAGE 12 OF 17 OFFICER THAT SHRI P. D. VACHHANI WAS AN EXPERIENCED PERSON HAVING KNOWLEDGE OF CERAMIC INDUSTRY AND SHRI H. K. VACHHANI WAS DIP LOMA HOLDER IN MECHANICAL ENGINEERING. BOTH THE PERSONS HAD KNOWLEDGE OF IND USTRY AND THE CONSULTANCY FEES HAVE BEEN PAID FOR TECHNICAL ADVICE. 52. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT IT I S NOT IN DISPUTE THAT THE TWO PERSONS ARE COVERED BY PROVISIONS OF SECTION 40 A(2)(B). IN ORDER TO ALLOW DEDUCTION FOR PAYMENTS MADE TO PERSONS COVERED UNDE R SECTION 40A(2)(B) IT MUST BE SHOWN THAT SUCH PAYMENT WAS NOT UNREASONABL E OR EXCESSIVE. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT AS A RESULT OF PAYMENT OF THE CONSULTANCY FEES THERE WAS AN INCREASE IN THE OPERA TIONAL EFFICIENCY OF THE PLANT OR QUALITY OF THE PRODUCT SHOWED ANY SIGNIFIC ANT IMPROVEMENT OR THAT THE PRODUCTION INCREASED AS A DIRECT RESULT THEREOF. TO CLAIM ANY EXPENSES IT IS INCUMBENT UPON THE ASSESSEE TO JUSTIFY THE SAME ON ACCOUNT OF COMMERCIAL NECESSITY. MERELY STATING THAT PAYMENT OF CONSULTAN CY FEES WAS MADE TO EXPERIENCE AND QUALIFIED PERSONS WOULD NOT JUSTIFY INCURRING OF THE EXPENDITURE THEREFORE HE CONFIRMED THE ORDER OF THE LEARNED AS SESSING OFFICER. 53. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED ASSESSING OFFIC ER AND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 54. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSIN G OFFICER FOUND THAT THE ASSESSEE HAS PAID `.5 06 900/- AS PROFESSIONAL FEE DURING THE YEAR TO THE RELATIVES OF THE DIRECTOR NAMELY SHRI P.D.VACHHANI AND H.K.VACHHANI. HE OBSERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSME NT YEAR THE PROFESSIONAL FEE PAID WAS `.37 541/-. THEREFORE THE LEARNED ASS ESSING OFFICER MADE ADDITION OF `.4 69 359/- BY CONSIDERING THE PAYMENT AS EXCESSIVE. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ED THE ACTION OF THE LEARNED ASSESSING OFFICER FOR THE REASON THAT THE A SSESSEE SHOULD SHOW IN CASE OF PAYMENTS MADE TO PERSONS COVERED UNDER SECTION 40A(2)(B) THAT SUCH PAYMENTS WAS NOT UNREASONABLE OR EXCESSIVE. THE CON TENTION OF THE LEARNED PAGE 13 OF 17 AUTHORISED REPRESENTATIVE OF THE ASSESSEE IS THAT D ISALLOWANCE UNDER SECTION 40A(2)(B) CAN BE MADE BY THE LEARNED ASSESSING OFFI CER WHERE HE FINDS THAT IN CASE OF PAYMENTS MADE TO PERSONS COVERED U/S.40A(2) (B) THAT THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE F AIR MARKET VALUE OF GOODS SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E. THEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFI ED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE FAILED TO SHOW THAT THE PAYMENT MADE TO THE RELATIVES OF THE DIREC TOR WAS NOT EXCESSIVE. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THE ABOVE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE. WE FIND THAT SECTION 40A(2) PROVIDES THAT WHERE THE LEARN ED ASSESSING OFFICER IS OF THE OPINION THAT IN RESPECT OF EXPENDITURE FOR WHIC H PAYMENT HAS BEEN MADE OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE ( B) OF SUB-SECTION (2) OF SECTION 40A AND THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS SERVI CES OR FACILITIES FOR WHICH THE PAYMENT IS MADE THEN SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWE D AS A DEDUCTION. NO MATERIAL WAS BROUGHT ON RECORD BY THE LOWER AUTHORI TIES TO SHOW THAT THE PROFESSIONAL FEE PAID TO THE TWO PERSONS WHO ARE RE LATIVES OF THE DIRECTORS WAS UNREASONABLE OR EXCESSIVE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY THEM. HENCE NO DISALLOWANCE CO ULD HAVE BEEN MADE OUT OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. WE THE REFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE DISALLOWANC E OF `.4 69 359/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 55. GROUND NO.4 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- 4. INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT JUSTIFIED. 56. WE HOLD THAT THIS GROUND OF APPEAL OF THE ASSES SEE IS PREMATURE AND THE SAME IS ACCORDINGLY DISMISSED 57. GROUND NO.5 OF ASSESSEES APPEAL FOR A.Y. 2001- 02 READS AS UNDER:- PAGE 14 OF 17 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234A 234B 234C AND 234D OF THE ACT. 58. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THE ABOVE GROUND OF APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 59. GROUND NO.1 OF ASSESSEES APPEAL FOR A.Y. 2005- 06 READS AS UNDER:- 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF `.2 25 605/- MADE UNDER SECTION 40A(3) OF THE ACT. LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT IS MADE TO GUJARAT ELECTRICITY BOARD A GOVERNMENT AGENCY IN CASH ON T HE BASIS OF COMMERCIAL EXPEDIENCY SINCE THE BOARD REFUSED TO AC CEPT THE PAYMENT BY CHEQUE. LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY LEARNED ASSES SING OFFICER AS THE RULE 6DD (B) OF THE ACT PROVIDES THAT IN CASE OF PA YMENT TO GOVERNMENT AGENCY DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40A(3) IS NOT REQUIRED TO BE MADE. THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) BEING ERRONEOUS REQUIRES TO BE QUASHED. 60. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE PAYMENT OF `.11 28 028/- TOWARDS POWER BILLS TO GEB IN CASH THEREBY VIOLATING THE PROVISIONS OF SEC TION 40A(3). ACCORDINGLY 20% OF THE EXPENSES AMOUNTING TO `.2 25 605/- WAS DISAL LOWED. 61. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE AND THE FACTS OF THE CASE. THERE IS NO DISPUTE REGARDING THE FACT THAT THE PAYMENT HAS BEE N MADE IN CASH. THE ONLY DEFENSE OF THE APPELLANT IS THAT THE GEB WAS A GOVERNMENT. BOARD AND THEREFORE THE APPELLANT WAS SAVED FROM THE DISA LLOWANCE BY THE PROVISIONS OF RULE 6DD(B). IT WOULD BE RELEVANT TO REPRODUCE RULE 6DD(B). IT READS AS UNDER :- 6DD. NO DISALLOWANCE UNDER SUB-SECTION(3) OF SEC TION 40A SHALL BE MADE WHERE ANY PAYMENT IN A SUM EXCEEDING [ TWEN TY THOUSAND ] RUPEES IS MADE OTHERWISE THAN BY A CROSSED CHEQUE D RAWN ON A BANK OR BY A CROSS BANK DRAFT IN THE CASES AND CIRCUMSTANCE S SPECIFIED HEREUNDER NAMELY:- (A) ***** PAGE 15 OF 17 (B) WHERE THE PAYMENT IS MADE TO GOVERNMENT AND UNDER THE RULES FRAMED BY IT SUCH PAYMENT IS REQUIRED TO BE MADE I N LEGAL TENDER. FROM A PLAIN READING OF THIS SECTION IT IS VERY CLE AR THAT THE APPELLANT WOULD BE SAVED FROM THE RIGOUR OF SECTION 40A(3) IF THE PAYMENT IS MADE TO GOVERNMENT AND IF SUCH PAYMENT IS MADE IN LEGAL TENDER. IN THE INSTANT CASE THE ELECTRICITY BOARD IS STRICTLY SPE AKING IS NOT GOVERNMENT. MOREOVER NO RULE HAS BEEN FRAMED UNDER ANY ACT UND ER WHICH THE GOVERNMENT REQUIRED THE PAYMENT OF POWER BILLS TO B E MADE IN LEGAL TENDER. THIRDLY IT IS DIFFICULT TO ACCEPT THE EXPL ANATION OF THE ASSESSEE THAT THE ELECTRICITY BOARD REFUSED TO ACCEPT ITS PA YMENT BY CHEQUE. IT IS HIGHLY UNLIKELY THAT THE GEB WOULD HAVE REFUSED PAY MENT THROUGH CHEQUE. NO EVIDENCE HAS BEEN ADDUCED TO ESTABLISH T HE FACT THAT THE GEB REFUSED PAYMENT BY CHEQUE. ACCORDINGLY I AM OF THE OPINION THAT THE APPELLANT HAS CONTRAVENED THE PROVISIONS OF SEC TION 40 A(3) AND THAT THEREFORE THE LEARNED ASSESSING OFFICER RIGHTLY DI SALLOWED 20% OF THE IMPUGNED EXPENDITURE. THE ADDITION IS CONFIRMED AND THIS GROUND OF APPEAL THUS FAILS. 62. AFTER HEARING THE RIVAL SUBMISSION AND PERUSING THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE PAID `.11 28 028/ - TO GUJARAT ELECTRICITY BOARD IN CASH. THE LEARNED ASSESSING OFFICER DISALLOWED 2 0% OUT OF THE SAME AMOUNTING TO `.2 25 605/- BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT AS THE PAYMENTS WERE NOT MADE BY CROSSED CHEQUE OR CRO SSED BANK DRAFT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE ACTION OF THE LEARNED ASSESSING OFFICER. THE CONTENTION OF THE AS SESSEE IS THAT GEB IS A GOVERNMENT DEPARTMENT AND THAT ANY PAYMENT MADE TO THE GOVERNMENT IS COVERED UNDER RULE 6DD(B) OF THE INCOME TAX RULES 1962 WHICH SPECIFICALLY ALLOWS EXEMPTION FROM SECTION 40A(3) IN CASE OF P AYMENT MADE TO GOVERNMENT. THEREFORE NO DISALLOWANCE UNDER SECTIO N 40A (3) WAS WARRANTED IN THE CASE OF THE ASSESSEE. THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISALLOWANCE FOR THE RE ASON THAT ELECTRICITY BOARD WAS NOT GOVERNMENT. NO MATERIAL WAS BROUGHT ON REC ORD BY THE ASSESSEE TO DEMONSTRATE THAT THE GUJARAT ELECTRICITY BOARD TO W HOM THE PAYMENT HAS BEEN MADE BY THE ASSESSEE WAS THE GOVERNMENT AND THEREFO RE WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS). IT IS CONFIRMED AND THE GROUND OF AP PEAL OF THE ASSESSEE IS DISMISSED. 63. GROUND NO.2 OF A.Y. 2005-06 READS AS UNDER :- PAGE 16 OF 17 2. INITIATION OF PENALTY UNDER SECTION 271(1)(C) O F THE ACT IS NOT JUSTIFIED. 64. WE HOLD THAT THIS GROUND OF APPEAL OF THE ASSES SEE IS PREMATURE AND THE SAME IS ACCORDINGLY DISMISSED. 65. GROUND NO.3 OF A.Y.2005-06 READS AS UNDER:- 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234B 234C AND 234D OF THE ACT. 66. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THE ABOVE GROUND OF APPEAL. HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 67. IN THE RESULT THE APPEAL OF THE APPEAL OF THE ASSESSEE IN ITA NO.2934/AHD/2008 FOR ASSESSMENT YEAR 1997-98 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. THE APPEAL OF THE ASSESSEE FOR A.Y. 2001 -02 IN ITA NO.2951/AHD/08 IS DISMISSED. THE APPEAL OF THE ASSESSEE FOR A.Y. 2 002-03 IN ITA.2952/AHD/08 IS PARTLY ALLOWED. THE APPEAL OF THE ASSESSEE FOR A.Y. 2003-04 IN ITA NO.2953/AHD/08 IS PARTLY ALLOWED. AND THE APPEAL FO R ASSESSMENT YEAR 2005-06 IN ITA NO.2954/.AHD/08 IS DISMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 24 TH DAY OF DECEMBER 2010. SD/- SD/- ( MAHAVIR SINGH) (N.S. S AINI) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: AHMEDABAD 24 TH DAY OF DECEMBER 2010 COMPILED AND COMPARED BY: PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III BARODA. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD PAGE 17 OF 17 DATE INITIALS 1. DRAFT DICTATED ON 10-12-2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 21-12-2010 --- --------------- 3. DRAFT PROPOSED & PLACED 22-12-2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 23-12-2010 ---------- --------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 23-12-2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 24-12-2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 24-12-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- ---- -----------------