ACIT, New Delhi v. M/s. Khanna Paper Mills Pvt. Ltd., New Delhi

ITA 4396/DEL/2010 | 2007-2008
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 439620114 RSA 2010
Assessee PAN AAACK1375K
Bench Delhi
Appeal Number ITA 4396/DEL/2010
Duration Of Justice 1 year(s)
Appellant ACIT, New Delhi
Respondent M/s. Khanna Paper Mills Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 30-09-2011
Date Of Final Hearing 02-06-2011
Next Hearing Date 02-06-2011
Assessment Year 2007-2008
Appeal Filed On 30-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 635/DEL/10 ASSTT. YRS: 2005-06 M/S KHANNA PAPER MILLS PVT. LTD. VS. ADDL. CIT RANGE-5 E-330 FIRST FLOOR GREATER KAILASH-II NEW DELHI . NEW DELHI. PAN/ GIR NO.AAACK1375K ITA NO. 1078 & 4396/DEL/10 ASSTT. YR: 2005-06 & 2007-08 ADDL. CIT RANGE-5 VS. M/S KHANNA PAPER MILLS PV T. LTD. NEW DELHI. E-330 FIRST FLOOR GREATER KAILASH- II NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI R.S. SINGHVI CA REVENUE BY : SHRI JAYANT MISHRA CIT (DR) O R D E R PER R.P. TOLANI J.M: : THIS IS A GROUP OF APPEALS; TWO CROSS APPEALS AGAIN ST CIT(A)S ORDER DATED 31-12-2009 FOR A.Y. 2005-06 & REVENUES APPE AL AGAINST CIT(A)S ORDER DATED 10-8-2010 FOR A.Y. 2007-08 ASSESSEE BE ING COMMON ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS TAKEN BY THE ASSESSEE AND THE REVENUE IN RESPECTIVE CROSS APPEALS FOR A.Y. 2005-06 ARE AS UNDER: ITA NO. 635/DEL/10 (ASSESSEES APPEAL FOR A.Y. 2005 -06) : 1(I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING DISALLOWANCE OF CLAIM OF POWER AND FUEL EXPENSES AMOUNTING TO RS. 5 82 03 77 4/-. ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 2 (II) THAT ENTIRE CLAIM IS FOR THE PURPOSE OF BUSINE SS AND CORRECTNESS OF THE SAME IS FULLY SUPPORTED AND CORR OBORATED FROM THE BOOKS OF ACCOUNTS PRODUCED AND VERIFIED BY ASSESSING OFFICER AND CIT(A). (III) THAT LOWER AUTHORITIES HAVE NOT FOUND ANY MIS TAKE OR IRREGULARITY IN RESPECT OF CLAIM OF POWER AND FUEL EXPENSES AND AS SUCH REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) IS HIGHLY ILLEGAL AND ARBITRARY AND IN TOTAL DISREGARD TO CLA RIFICATION BEFORE ASSESSING OFFICER AND CIT(A). (IV) THAT THE CLAIM RELATING TO POWER AND FUEL EXPE NSES HAVE BEEN ACCEPTED IN PRECEDING AND SUCCEEDING YEARS AND EVEN THOUGH THE FACT OF EXCESS CONSUMPTION WAS SUPPORTED ON THE BASIS OF MATERIAL AND EVIDENCES THE LOWER AUTHORIT IES HAVE TOTALLY DISREGARD THE SAME AND ADDITION WAS SUSTAIN ED ON MECHANICAL BASIS. 2. THAT ORDERS OF THE LOWER AUTHORITIES ARE NOT JUS TIFIED ON FACTS AND SAME ARE BAD IN LAW. ITA NO. 1078/DEL/10 (REVENUES APPEAL FOR A.Y. 2005 -06) : (1) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND C ONTRARY TO FACTS AND LAW. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 9 01 07 869/- MADE BY THE AO DEPRECIATION CLAIMED B Y THE ASSESSEE FOR WHICH NO EVIDENCE WERE PRODUCED TO SUB STANTIATE THE CLAIM. (3) THE LD. CIT(A) IGNORED THE OBSERVATIONS MADE BY THE AO IN THE REMAND REPORT WHEREIN NUMBER DEFECTS IN SUBM ISSIONS OF THE ASSESSEE WERE REPORTED. (4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 11 51 790/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT BEING T HE ISSUE OF ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 3 BONUS SHARES TO THE SHARE HOLDERS OF M/S R.C. VANAS PATI ON ACCOUNT OF MERGER. (5) THE LD. CIT(A) IGNORED THE OBSERVATIONS MADE IN THE SCHEDULE IV OF THE COMPANY ACT IN AUDIT REPORT SUBM ITTED WITH THE RETURN OF THE ASSESSEE COMPANY. (6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 10 65 325/- MADE BY THE AO U/S 40(A)(IA) OF THE I.T. ACT READ W ITH SECTION 43B OF THE ACT HOLDING THAT THE PAYMENT WAS MADE BE FORE THE DUE DATE OF FILING THE RETURN THE RETURN AS PER SEC TION 139(1) OF THE ACT. (7) THE LD. CIT(A) IGNORED THE FACT THAT THE AMENDM ENT TO SECTION 43B OF THE ACT IS W.E.F. 1.4.2005 I.E. APPL ICABLE FROM AY 2006-07 ONWARDS. (8) THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUND OF THE APPEAL RAISED ABOUT AT THE TIME OF TH E HEARING. 2.1. IN SHORT THE GROUNDS RAISED BY THE ASSESSEE P ERTAIN TO DISALLOWANCE OF POWER AND FUEL EXPENSES AND REVENUES GROUNDS ARE I N RESPECT OF DEPRECIATION; U/S 2(22)(E) AND U/S 40(A)(IA). 3. APROPOS ASSESSEES GROUNDS RELATING TO REJECTION OF BOOKS OF ACCOUNTS AND VALUATION OF CLOSING STOCK OF COAL BRIEF FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF PAPER AND COAL IS USED AS A FUEL FOR ITS MANUFACTURING OPERATIONS. DURING THE YEAR AO FOUND THAT THERE WAS A HUGE INCREASE IN POWER AND FUEL EXPENSES THOUGH THE PR ODUCTION WAS BY AND LARGE SAME SHOW CAUSE NOTICE WAS ISSUED REQUIRING THE ASSESSEE TO EXPLAIN SUCH INCREASE IN COAL CONSUMPTION. THE ASSESSEE FUR NISHED A DETAILED REPLY WHICH IS REPRODUCED IN CIT(A)S ORDER MAIN CONTENT IONS TAKEN ARE AS UNDER: ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 4 (I) ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNTS WHICH WERE STATUTORILY AUDITED SUPPORTED BY CLOSING STOCK INV ENTORY AND SUPPORTING. NO DISCREPANCIES WERE FOUND THEREON. IN THE ABSENCE OF ANY FAULT IN THE A/C BOOKS AND RECORD BOOK RESULTS CANNOT BE REJECTED. (II) THE G.P. RATE DURING THE YEAR INCREASED TO 25.08% A S COMPARED TO 24.72% IN A.Y. 2004-05. BOOK RESULTS BEING BETTER THE BOOKS OF ACCOUNT COULD NOT BE REJECTED. (III) AS A RESULT OF INSTALLATION OF NEW BOILER THE SIGN IFICANT PART OF THE COST OF GENERATION OF STEAM I.E. CONSUMPTION OF COA L WAS BEING CLASSIFIED UNDER THE HEAD CONSUMPTION OF RAW MATER IAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WHEREAS DURIN G THE YEAR IN QUESTION THE COST OF CONSUMPTION OF COALS WAS CLASS IFIED UNDER THE ACCOUNT HEAD POWER AND FUEL INSTEAD OF CONSUMPTION OF RAW MATERIAL IN THE IMMEDIATELY PRECEDING YEAR. 3.1. AO WAS NOT CONVINCED AND HELD THAT ASSESSEE F AILED TO JUSTIFY INCREASE IN COAL CONSUMPTION THIS ADDITION WAS MADE BY FOL LOWING OBSERVATIONS: THE ABOVE CHART SHOWS THAT THOUGH THE PRODUCTION A ND CONSUMPTION OF ELECTRICITY INCREASE OVER THE PREVIO US YEAR ONLY BY 1.71% AND 2.48% RESPECTIVELY THE CONSUMPTION OF COAL INCREASED BY 50.51%. IT IS ALSO NOTEWORTHY THAT DUR ING THE YEAR THE PERCENTAGE OF THE YIELD OF THE ASSESSEE HAS INC REASED FROM 89.1% TO 91.13%. THE CONSUMPTION OF RAW MATERIAL AN D PRODUCTION IS ALMOST STATIC. THE EXPLANATION OF THE ASSESSEE THAT EARLIER THE COAL WAS SHOWN UNDER THE HEADING RAW M ATERIAL DOES NOT HOLD GOOD ON THE BASIS OF THE FACT THAT TH E ABOVE MENTIONED CHART SHOWS THE QUANTITATIVE CONSUMPTION OF COAL IRRESPECTIVE OF THE FACT WHERE THE VALUE OF COAL HA S BEEN BOOKED. AS THE ASSESSEE COULD NOT SUBSTANTIATE THIS CLAIM O F CONSUMPTION OF COAL AND SATISFIED THAT THE TRADING RESULTS ARE NOT ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 5 PROPER AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS REJECTED U/S 145(3) OF THE IT ACT AND AS PER MY BEST JUDGMENT TH E TOTAL INCOME OF THE ASSESSEE IS CALCULATED. AS THE ASSESS EE HAS SHOWN MARGINAL INCREASE IN GROSS PROFIT AND CONSIDERING T HE SUBMISSION OF THE ASSESSEE IN THE MANUFACTURING ACC OUNT ONLY THE EXCESSIVE CLAIM OF COAL IS BEING DISALLOWED. CO NSIDERING THE ABNORMAL CLAIM OF INCREASE IN COAL CONSUMPTION VIS A VIS PRODUCTION THE EXPENSES OF POWER AND FUEL ON COAL IS TREATED AS EXCESSIVE AND NOT RELATED TO THE BUSINESS OF THE AS SESSEE. CONSIDERING THE FACT THAT IT WAS NOT POSSIBLE TO VE RIFY THE HUGE CONSUMPTION OF COAL VIS A VIS THE PRODUCTION AND CO NSIDERING THE EXPANSION PLAN OF THE ASSESSEE A LIBERAL APPRO ACH HAS BEEN TAKEN AND AN INCREASE OF 20% OVER THE PREVIOUS YEAR CONSUMPTION IS ALLOWED TO THE ASSESSEE WHICH IS CAL CULATED AS BELOW: CONSUMPTION OF COAL IN FY 2004-05 61244.76(MT) ADD: INCREASE @ 20% 12248(MT) TOTAL CONSUMPTION OF COAL ALLOWED 73492.76(MT) TOTAL CONSUMPTION OF COAL CLAIMED 92183.79(MT) IN FY 2005-06 LESS: TOTAL CONSUMPTION OF COAL 73492.76(MT) ALLOWED AS ABOVE 18691.03(MT) TOTAL CONSUMPTION OF COAL DISALLOWED 18691.03(MT) AVERAGE RATE PER TON OF COAL CLAIMED BY 3114 THE ASSESSEE TOTAL VALUE OF CONSUMPTION OF COAL DISALLOWED (18691 X 3114)=58203774 ON THE BASIS OF THE ABOVE DISCUSSION AMOUNT OF RS. 58203774 IS DISALLOWED UNDER THE HEAD POWER AND FUEL EXPENSES A FTER REJECTING THE BOOKS OF ACCOUNTS AND FOR THE SAKE OF CALCULATION THIS AMOUNT IS ADDED IN THE TOTAL INCOME OF THE ASS ESSEE WHICH ARE DECLARED. 3.2. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL AD DITIONAL EVIDENCE WAS FILED A REMAND REPORT WAS CALLED BY CIT(A) FROM AO AND THE ADDITIONAL EVIDENCE WAS DULY ADMITTED . ASSESSEE FILED WRITTEN SUBMISSIONS ON 2-12- ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 6 08; 8-12-09 AND 15-12-09 WHICH ARE REPRODUCED BY T HE CIT(A) ON PAGES 12 TO 15 OF HIS ORDER WHICH MAINLY RAISED FOLLOWING P OINTS: (1) THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE COMPANY HAD PURCHASED SUBSTANTIAL QUANTITY OF COAL FROM RAJASTH AN STATE MINES LTD. WHICH HAD A VERY LOW CALORIFIC VALUE AS COMPAR ED TO THE COAL PURCHASED FROM M/S RELIANCE INDUSTRIES LTD. FURTHER THE CALORIFIC VALUE OF COAL PURCHASED FROM TWO CONCERNS NAMELY K HURANA ASSOCIATES AND SHRI GANPATI INDUSTRIES DEALING IN A SSAM COAL ALSO HAD COMPARATIVELY LESS CALORIFIC VALUE. (2) THOUGH THERE HAS BEEN AN INCREASE IN THE COST OF PO WER AND FUEL EXPENSES THERE HAS BEEN OVERALL IMPROVEMENT IN THE TRADING RESULTS AND THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE TR ADING RESULTS WERE NOT ACCEPTABLE. (3) IT IS CLAIMED THAT THE COMPARATIVE DETAILS OF STEAM GENERATION VIS A VIS THE TOTAL QUANTITY OF COAL CONSUMED CLEARLY SU GGESTS THAT THERE HAS BEEN COMPARATIVELY LESS GENERATION OF STEAM AND THERE WAS NO EXCESS CONSUMPTION OF STEAM IN THE MANUFACTURING AC TIVITIES AS SUCH. (4) THE COAL HAS BEEN PURCHASED FROM THE STATE OWNED CO NCERNS AND RELIANCE INDUSTRIES LTD. AND THEREFORE THERE CANNO T BE A CASE OF BOGUS/ INFLATED PURCHASE. THE AO HAS ALSO NOT DOUBT ED THE PURCHASES OF THE COAL IN QUESTION. (5) BEFORE AO THE REASON ABOUT CHANGE IN CLASSIFICATION OF EXPENSES WAS MISTAKENLY TAKEN BY CA. (6) NO ADDITION ON ADHOC BASIS BASED ON PRESUMPTIONS AN D SURMISES CAN BE MADE. ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 7 3.3. CIT(A) OBSERVED THAT BEFORE AO ASSESSEE HAD TA KEN A PLEA THAT MAIN REASON FOR INCREASE IN THE COST OF POWER AND FUEL WAS RECLASSIFICATION AND SHIFTING OF CONSUMPTION OF COAL FROM BASIC RAW MATE RIAL TO THE POWER AND FUEL ACCOUNT. HOWEVER BEFORE CIT(A) THE ASSESSEE C HANGED ITS STAND AND PLEADED THAT THE PLEA WAS A BONA FIDE MISTAKE ON TH E PART OF ASSESSEES COUNSEL WHO REPRESENTED BEFORE AO. CIT(A) HOWEVER FOUND THE EXPLANATION OF THE ASSESSEE IN THIS REGARD TO BE NO T ACCEPTABLE AND UPHELD THE ORDER OF AO BY FOLLOWING OBSERVATIONS: 7.5. THUS THE FOLLOWING LOGICAL/ INEVITABLE CONCL USIONS MAY BE DRAWN: A. DURING THE YEAR UNDER CONSIDERATION THE CONSUMPT ION OF COAL HAS SHOWN A PHENOMENAL INCREASE AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. AS AGAINST 9.389 UN ITS PER METRIC TON OF COAL THE GENERATION OF STEAM DUR ING THE YEAR UNDER CONSIDERATION IS ONLY 6.142 UNITS. B. CONSUMPTION OF STEAM PER METRIC TON OF PRODUCTIO N HAS GONE UP TO 39.96% AS COMPARED TO 38.14% OF THE PRODUCTION IN THE IMMEDIATELY PRECEDING YEAR. C. POWER CONSUMED PER METRIC TON OF PRODUCTION HAS GONE UP TO 758.47 UNITS PMT AS AGAINST 752.79 PMT IN THE PRECEDING YEAR. D. AVERAGE RATE OF PRODUCTION COST IS 3.40 PER UNI T AS AGAINST 2.78 PER UNIT IN THE IMMEDIATELY SUCCEEDING YEAR. E. COST OF ELECTRICITY AND COAL PER UNIT OF PRODUCT ION IS 3387.38 AS COMPARED TO 3171.97 IN THE IMMEDIATELY SUCCEEDING YEAR. F. THE AVERAGE EXPENSES AS AGAINST SALES ARE 13.12% IN THE YEAR UNDER CONSIDERATION AS COMPARED TO 11.95% IN T HE IMMEDIATELY SUCCEEDING YEAR. 7.6. WHEN ALL THESE SITUATIONS ARE TAKEN TOGETHER I HAVE NO HESITATION IN HOLDING THAT THE CONSUMPTION OF COAL DURING THE ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 8 YEAR UNDER CONSIDERATION WAS DEFINITELY ON A MUCH H IGHER SIDE AS COMPARED TO NOT ONLY THE PRECEDING YEAR BUT ALSO THE SUCCEEDING YEAR. THEREFORE THE AO WAS WELL WITHIN HIS POWER TO EXAMINE THIS ISSUE IN DETAIL AND CALL FOR NECESS ARY EXPLANATION AND DOCUMENTS FROM THE APPELLANT COMPANY. HOWEVER AS STATED EARLIER THE ASSESSEE COMPANY FAILED TO SUBMIT JUST IFIABLE EXPLANATIONS TO THE SATISFACTION OF THE AO RATHER IT HAS CHOSEN TO MISLEAD THE AO BY INTRODUCING A THEORY OF RE-CLA SSIFICATION OF HEADS AS TO THE CONSUMPTION OF COAL. IN THESE CI RCUMSTANCES WHEN THE FACTUAL POSITION IS HEAVILY AGAINST THE AP PELLANT COMPANY I DO NOT SEE ANY REASONS FOR INTERFERING W ITH THE DECISION OF THE AO. AGGRIEVED ASSESSEE IS BEFORE US. 4. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND CONTENDS THAT:- (I) DURING THE YEAR THE ASSESSEE HAD PURCHASED COALS F ROM THE FOLLOWING PARTIES: M/S RELIANCE COAL 36429.821 MT. M/S ASSAM COAL 8211.166 MT. M/S RAJASTHAN GOVERNMENT COAL 40503.85 MT. (II) IT MAY BE APPRECIATED THAT ALL THE PURCHASES MADE BY THE ASSESSEE COMPANY ARE ONLY FROM THESE THREE PARTIES AND ALL P AYMENTS HAVE BEEN MADE BY THE ACCOUNT PAYEE CHEQUES ONLY. THE BO OKS OF ACCOUNT WERE DULY SCRUTINIZED BY THE ASSESSING OFFI CER AND NO SPECIFIC INSTANCE HAS BEEN POINTED OUT TO SUGGEST T HAT THERE IS ANY IRREGULARITIES IN RECORDING PURCHASES OF THE COAL (III) THE COAL PURCHASED HAS DIFFERENT CALORIFIC VALUE DE PENDING ON THE SOURCE. FOR INSTANCE THE COAL PURCHASED FROM RAJAST HAN GOVERNMENT HAS A CALORIFIC VALUE OF ONLY 3000 PER M T. AS COMPARED TO 8210 PER MT. IN RESPECT OF THE COAL PUR CHASED FROM ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 9 M/S RELIANCE COAL. THIS YEAR THE ASSESSEE HAS PURC HASED 40503 MT. OF COAL PURCHASED FROM M/S RAJASTHAN GOVERNMENT COA L AND 36430 MT. FROM RELIANCE COAL. IN THE PRECEDING YEAR IT HA D OBTAINED ALMOST 99% OF ITS REQUIREMENT FROM M/S RELIANCE COA L. THIS YEAR IT COULD OBTAIN ONLY 41% OF ITS REQUIREMENT FROM M/S R ELIANCE COAL AND ABOUT 49% WAS MET OUT OF THE PURCHASES FROM RAJ ASTHAN GOVERNMENT COAL. (IV) THE RATE OF COAL PURCHASE IS NOT IN THE CONTROL OF THE ASSESSEE AND IT HAD TO OBTAIN THE COAL FROM THE AVAILABLE SOURC E AT THE DETERMINED PRICES. IN THESE CIRCUMSTANCES THE QUANT ITY OF CONSUMPTION OF COAL IS BOUND TO VARY FROM YEAR TO Y EAR. (V) IN EARLIER YEARS MAJOR QUANTITY OF COAL WAS BEING PURCHASED FROM RELIANCE. THE CALORIFIC VALUE (BASIC CONSTITUENT OF COAL FOR GENERATION OF STEAM AND CONSEQUENT POWER) OF COAL F ROM RELIANCE WAS 8200 APPROX. RELIANCE INCREASED PRICE OF ITS CO AL SUBSTANTIALLY DURING THE YEAR 2004-05. FURTHER DUE TO AVAILABILIT Y CONSTRAINTS ASSESSEE HAD TO SHIFT PURCHASES OF COAL FROM RELIA NCE TO RAJASTHAN GOVERNMENT. (VI) THE CALORIFIC VALUE OF COAL PURCHASED FROM RAJASTH AN GOVERNMENT WAS 3000 APPROX. IN OTHER WORDS 1 MT OF RAJASTHAN COAL MET ONLY 1/3 RD OF THE COAL REQUIREMENT IN TERMS OF CALORIFIC VALU E AS COMPARED TO THE RELIANCE COAL. MORE PRECISELY IN O RDER TO FULFILL THE REQUIREMENT OF 1 MT OF RELIANCE COAL THE COMP ANY HAD TO PROCURE 2.75 TIMES RAJASTHAN COAL. HENCE THE COMPA NY NEEDED MORE COAL TO MEET ITS REQUIREMENT OF STEAM/POWER WH ICH IN TURN IS AS FUNCTION OF CALORIFIC VALUE. THEREFORE MORE COA L IN QUANTITATIVE TERMS HAD TO BE PURCHASE FROM RAJASTHAN GOVERNMENT OR OTHER ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 10 SOURCES LIKE ASSAM COAL FROM WHICH LITTLE QUANTITY WAS PROCURED FOR ASSAM COAL HAVING CALORIFIC VALUE OF 6000 APPRO X. WITH A RESULT THE CONSUMPTION AND HENCE PURCHASES OF COA L WENT UP SUBSTANTIALLY IN TERMS OF QUANTITY. (VII) THE TOTAL QUANTITY OF COAL CONSUMPTION DURING THE Y EAR 2004-05 WAS APPROX 87138 MT FOR A PRODUCTION OF 113627 MT W HEREAS THE SAME WAS ONLY 58602 MT FOR A PRODUCTION OF 111730 M T. THIS IN TURN LED TO A HEAVY INCREASE IN COST OF FUEL. HOW EVER THE TOTAL CALORIFIC VALUE VIS--VIS PRODUCTION REMAINED THE S AME THE CALORIFIC VALUE CONSUMED DURING THE YEAR 2003-04 WA S 441318400 FOR PRODUCTION OF 111730 M.TONS OF FINISHED GOODS WHEREAS THE CALORIFIC VALUE CONSUMED DURING THE YEAR 2004-05 WA S 406963583 FOR A PRODUCTION 113627 M. TONS OF FINISHED GOODS. (VIII) LEARNED COUNSEL SUBMITTED THAT THE PRICE OF COAL IS NOT UNDER COMPANYS CONTROL. THE PRICE WAS EITHER CONTROLLED BY M/S RELIANCE COAL OR THE RAJASTHAN GOVERNMENT. THE CERT IFICATES OF CALORIFIC VALUES FROM THE CONCERNED AUTHORITIES ARE ON THE PAPER BOOK. (IX) THE INCREASE IN THE POWER AND FUEL EXPENSES IS ONLY ON ACCOUNT OF QUANTITY OF COAL WHICH RESULTED IN LESS GENERATION OF STEAM COMPARATIVE DETAILS OF STEAM GENERATION THE EXCESS CONSUMPTION IS ON ACCOUNT OF LESS GENERATION OF STEAM AND NOT ON A CCOUNT OF EXCESS CONSUMPTION OF STEAM IN THE MANUFACTURING AC TIVITIES. (X) ASSESSEE HAS FILED FOLLOWING RELEVANT DETAILS IN P APER BOOK: (A) CHART SHOWING CONSUMPTION OF CALORIFIC VALUE OF COA L VIS A VIS PRODUCTION FOR THE YEAR 2004-05 AS COMPARED TO THE YEAR 2003- 04 ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 11 (B) CHART SHOWING CONSUMPTION OF VARIOUS TYPES OF COAL DURING THE YEAR 2004-05 AS COMPARED TO THE YEAR 2003-04 SHOWIN G QUANTITY CONSUMED AVERAGE RATE AND FREIGHT CONTENT . (C) CHART SHOWING AVERAGE CONSUMPTION OF CALORIFIC VALU E AS PER TON OF FINISHED PRODUCTION. (D) CERTIFICATE REGARDING CALORIFIC VALUE OF RELIANCE C OAL. (XI) THE COAL HAS BEEN PURCHASED EITHER FROM THE STATE A UTHORITIES OR FROM DIVISION OF RELIANCE INDUSTRIES LTD. AND EVEN ASSESSING OFFICER HAS NOT DISPUTED THE CORRECTNESS OF THE PUR CHASES WHICH IS CORROBORATED FROM PURCHASE BILLS DETAILS OF FREIGH T AND OTHER DOCUMENTARY EVIDENCES. (XII) THE ONLY BASIS ON WHICH ASSESSING OFFICER HAS MADE ADHOC DISALLOWANCE IS ON ACCOUNT OF EXCESS CONSUMPTION OF COAL WITHOUT TAKING INTO CONSIDERATION THE QUALITY OF COAL AND G ENERAL OF STEAM AND ELECTRICITY. THERE CANNOT BE ANY ADVERSE INFERE NCE UNLESS IT IS ESTABLISHED THE PURCHASES ARE BOGUS OR NOT SUPPORTE D BY SUPPORTING DETAILS AND EVIDENCES. THE ASSESSING OFFICER HAS NO T DISPUTED THE PURCHASE OF THE COAL OR CONSUMPTION OF THE COAL AND AS SUCH DISALLOWANCE IS ON HIGHLY ILLEGAL AND ARBITRARY BAS IS. THE APPELLANT HAS BEEN ABLE TO DEMONSTRATE VARIOUS COMPONENTS OF EXPENSES AND AS A RESULT OF SAME GP RATE HAS IN FACT INCREASED IN THIS YEAR. 4.1. LEARNED COUNSEL FOR THE ASSESSEE ON THE BASIS OF THESE ARGUMENTS VEHEMENTLY CONTENDS AS UNDER: (1) NO DEFECT WHATSOEVER HAS BEEN FOUND IN THE BOOKS OF ACCOUNTS OR PURCHASES OF COAL EITHER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS OR THE REMAND REPORTS WHICH ARE SUBSEQUENTLY FILED BY THE AO BEFORE CIT(A). THUS IT REMAINS A MATTER OF RECORD THAT TH ERE EXISTS NO ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 12 DISCREPANCY IN THE BOOKS OF ACCOUNTS EITHER ON PURC HASE OF COAL OR ITS STOCK VALUE. IN THE ABSENCE OF ANY DEFECT IN THE PU RCHASE OR BOOKS OF ACCOUNTS THEY CANNOT BE REJECTED RECOURSE TO SEC. 145 ON SOME HYPOTHETICAL ASSUMPTIONS AND OVERALL COMPARISONS. C OURTS HAVE REPEATEDLY HELD THAT EVEN IN CASE IF THE G.P. RATE IS LOW THE SAME ALONE CANNOT BE A BASIS FOR REJECTION OF BOOKS. REL IANCE IS PLACED ON THE HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENTS IN THE CASES OF CIT VS. K.S. BHATIA 125 TAXMAN 454; AND CIT VS. M/S SUNRAYA EXPORTS PVT. LTD. (ITA NO. 767 OF 2010) DATED 10-1- 2011. (2) IN THE CASE OF ASSESSEE EVEN THE G.P. RATE IN THIS YEAR OF 23.95% IS MORE THAN 20.92% IN A.Y. 2003-04 AND 21.35% IN A.Y. 2004-05. IT IS CONTENDED THAT T HE ASSESSEES BOOK RESULTS BEING B ETTER THERE BEING NO DEFECT IN THE RECORDING OF PURCHASE AND BOOKS OF ACCOUNT THERE CANNOT BE ANY OCCASION TO REJECT THE BOOKS OF THE A SSESSEE ONLY ON THE BASIS OF OVERALL COMPARISON OF COAL CONSUMPTION OR OVERALL PRODUCTION COST PER ELECTRICITY UNIT. RELIANCE IS P LACED ON HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. PA RADISE HOLIDAYS (2010) 195 TAXMAN 291(DEL.) WHEREIN IT HAS BEEN HE LD THAT REJECTION OF BOOKS CANNOT BE UPHELD WHEN THERE IS NEITHER ANY DEFECT IN THE BOOKS OF ACCOUNTS NOR IN THE METHOD OF ACCOUNTING B Y FOLLOWING OBSERVATION: THE ASSESSING OFFER HA NOT POINTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. ADMITTEDLY THE ASSESSEE HAD BEEN MAINTAINING REGULAR BOOKS OF ACCOUNT WHICH WERE DULY AUDITED BY AN INDEPENDENT CHARTERED ACCOUNTANT. AS NOTED BY CIT(A) THE FINANCIAL RESULTS WERE FULLY SUPPORTED BY THE ASSESSEE WITH VOUCHERS AND THE BOOKS OF ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 13 ACCOUNT WERE COMPLETE AND CORRECT IN ALL RESPECTS. THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY AUDITED FREE FROM ANY QUALIFICATION BY THE AUDITORS SHOULD NORMALLY BE TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM. THE QUESTION AS TO WHETHER THE ACCOUNTS PRODUCED BY THE ASSESSEE WERE DEFECTIVE/ INCOMPLETE OR NOT IS A QUESTION OF FACT. THE COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS INCOME-TAX APPELLATE TRIBUNAL HAVE FOUND THAT THE ACCOUNTS MAINTAINED BY THE RESPONDENT WERE NEITHER DEFECTIVE NOR INCOMPLETE. EVEN THE ASSESSING OFFICER HAS NOT FOUND ANY FAULT AS SUCH WITH THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. THE TRIBUNAL WHICH IS THE FINAL FACT FINDING AUTHORITY HAS HELD THAT CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE IT WAS NOT OBLIGATORY TO ENTER INTO A FORMAL AGREEMENT WITH THE FOREIGN PRINCIPAL. HENCE NON-PRODUCTION OF FORMAL AGREEMENTS WITH THE FOREIGN PRINCIPALS WOULD NOT RENDER THE ACCOUNTS OF THE ASSESSEE INCOMPLETE AND WOULD NOT GIVE JUSTIFICATION TO THE ASSESSING OFFICER TO REJECT THEM UNDER SECTION 145(3) OF THE ACT. SIMILARLY THE EXPLANATION GIVEN BY THE ASSESSEE FOR THE TOUR EXPENSES NOT RECONCILING WITH TOUR ITINERARY HAVING BEEN ACCEPTED BOTH BY COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS BY THE TRIBUNAL THE ACCOUNTS OF THE ASSESSEE CANNOT BE SAID TO BE DEFECTIVE ON THIS GROUND AND THEREFORE COULD NOT HAVE BEEN REJECTED. IF ANY PARTICULAR EXPENSE CLAIMED BY THE ASSESSEE REMAINED UNVERIFIED THE ASSESSING ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 14 OFFICER COULD HAVE DISALLOWED THAT PARTICULAR EXPENSE. BUT THAT BY ITSELF CANNOT BE A GROUND FOR REJECTION OF ACCOUNTS AS A WHOLE UNDER SECTION 145(3) OF THE ACT. THE FINDING OF FACT RECORDED BY THE ITAT HAS NOT BEEN SHOWN TO BE PERVERSE AND HENCE CANNOT BE INTERFERED WITH BY THIS COURT. 4.2. COURTS HAVE CATEGORICALLY HELD THAT THERE BEIN G NO OBJECTIONS OF QUALIFICATION BY AUDITORS BOOKS OF ACCOUNTS CANNOT BE REJECTED U/S 145 ONLY BECAUSE THE EXPLANATION OF THE ASSESSEE ABOUT RECON CILING WITH TOUR ITINERARY EXPENSES WAS REJECTED. THE BURDEN WAS ON REVENUE TO PROVE THAT THE BOOKS MAINTAINED AND METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE ARE INCORRECT. 4.3. IN THIS CASE ALSO THE ISSUE IS RECONCILIATION OF OVERALL COAL CONSUMPTION. BOTH THE LOWER AUTHORITIES HAVE NOT PO INTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT AND MERELY ON SOME OVERALL REC ONCILIATION ASSESSEES BOOK RESULTS ARE REJECTED RESULTING IN HUGE ADDITI ONS WHICH IS NOT WARRANTED BY LAW. 4.4. IN THE CASE OF ALUMINIUM INDUSTRIES (P) LTD. V S. CIT (1995) 80 TAXMAN 184 (GAU.) IT HAS BEEN HELD THAT THOUGH THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER AND DID NOT PRODUCE PART IES TO WHOM CHARGES AMOUNTING TO RS. 20 000/- OR MORE WERE PAID EVEN THEN THE BOOK RESULTS OF THE ASSESSEE COULD NOT BE REJECTED WHEN NO OTHER DI SCREPANCY WAS FOUND IN THE BOOKS OF ACCOUNT. 4.5. LEARNED COUNSEL THUS CONTENDS THAT THERE IS A CATENA OF JUDGMENTS THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE CANNOT BE REJE CTED IN A CURSORY MANNER WITHOUT FINDING ANY WORTHWHILE FAULT OR INACCURACY THEREIN. THEY CANNOT BE ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 15 REJECTED ON RECONCILIATION DIFFERENCE PRESUMPTIVE I SSUES OR OVERALL COMPARISONS. IN CASE OF REJECTION OF BOOKS THE ONU S OF JUSTIFYING THE DRASTIC ACTION IS TO BE DISCHARGED BY THE REVENUE. 4.6. IN THIS CASE WHAT WORST CAN BE ASSUMED IS THAT ASSESSEE IS NOT A PRUDENT BUSINESSMAN AND BECAUSE OF ITS LACKLUSTER M ANAGEMENT OF THE PLANT MORE COAL WAS CONSUMED. IT IS A SETTLED LAW THAT RE VENUE CANNOT DICTATE THE TERMS AS TO HOW TO USE COAL AND THEREFORE CANNOT B E A BASIS FOR SUCH ADDITIONS. 4.7. THE ASSESSEE PURCHASED COAL FROM TWO GOVERNMEN T AGENCIES I.E. M/S RAJASTHAN GOVERNMENT COAL; AND M/S ASSAM COAL. ALL THE BILLS AND VOUCHERS ARE PRODUCED; THE PAYMENTS ARE THROUGH BAN KING CHANNELS; THE SAME ARE SUPPORTED WITH DELIVERY VOUCHERS; THE OTHE R PARTY IS M/S RELIANCE COAL. THE COAL SUPPLY CONTAINED DIFFERENT CALORIFIC VALUE AND THE ASSESSEES MANAGEMENT CANNOT SIT ON EACH AND EVERY LOT AND REL EASE A LIMITED QUANTITY OF COAL THEREFORE THIS CANNOT BE A BASIS FOR REJE CTION OF THE BOOKS OF THE ASSESSEE WHICH ARE OTHERWISE DULY MAINTAINED AND STATUTORILY AUDITED. 4.8. COMING TO THE CIT(A)S OBSERVATIONS LEARNED C OUNSEL CONTENDS THAT CIT(A) HIMSELF HAS OBSERVED THAT OVERALL PRODUCTION DETAILS ARE COMPARABLE NAMELY THE CONSUMPTION OF STEAM PER MT IS 39.96% AS COMPARED TO 38.14% IN PRECEDING YEAR. IT IS ALSO COMPARABLE TO POWER C ONSUMED PER MT PRODUCTION IS 758.47 AS AGAINST 752.79 PER MT IN PR ECEDING YEAR WHICH IS ALSO COMPARABLE. COST OF ELECTRICITY AND COAL PER U NIT PRODUCTION IS 3387.38 AS COMPARED TO 3175.17 IN THE IMMEDIATELY SUCCEEDIN G YEAR. ADVERSE INFERENCE HAS BEEN DRAWN ON THE GROUND THAT THE CON SUMPTION OF COAL HAS ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 16 GONE FROM 6.142 UNIT TO 9.389 ON GENERATION OF STEA M AND AVERAGE SALES EXPENSES HAVE GONE UP. 4.9. LEARNED COUNSEL CONTENDS THAT THESE ARE ALL MA NAGEMENT ACCOUNTING FIGURES AND IN THE ABSENCE OF ANY DEFECT IN THE BOO KS OF ACCOUNTS THEY CANNOT LEAD TO A DRASTIC ACTION OF REJECTION OF BOO KS OF ASSESSEE WHICH ARE DULY MAINTAINED AND STATUTORILY AUDITED. THE ASSESS EE HAS GIVEN A PROPER AND REASONABLE EXPLANATION WHICH HAS BEEN REJECTED ON H YPOTHETICAL COMPARISONS. 4.10. IN ANOTHER CASE CIT VS. POONAM RANI HONBLE DELHI HIGH COURT 326 ITR 323 HELD THAT WHEN THE ASSESSEE HAS FURNISHED C OMPLETE QUANTITATIVE DETAILS IN RESPECT OF PURCHASE OF RAW-MATERIAL AND FIGURES OF SALES OF FINISHED GOODS IT CANNOT BE HELD THAT BOOKS OF ACCOUNT OF T HE ASSESSEE WERE INCOMPLETE OR INACCURATE BECAUSE THE ASSESSEE WAS NOT MAINTAINING DAILY STOCK REGISTER. IT WOULD NOT BY ITSELF LEAD TO INFE RENCE THAT THE ASSESSEES BOOKS ARE DEFECTIVE OR INCOMPLETE AND THE SAME CANN OT BE REJECTED U/S 145. FURTHER RELIANCE IS PLACED ON JAS JACK ELEGANCE EXP ORTS 324 ITR 95 (DEL); 125 TAXMAN 454 G.K. BATRA FOR THE SAME PROPOSITION . 4.11. LEARNED COUNSEL CONTENDS THAT CIT(A) HAS BEEN OVER INFLUENCED BY THE FACT THAT THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE HIM ABOUT THE INCREASE IN COAL CONSUMPTION WAS DIFFERENT THAN THE ONE GIVEN BEFORE AO. THE ASSESSEE CLARIFIED THAT THE EXPLANATION WAS PR EPARED BY THE CA WHO APPEARED IN THE TAX PROCEEDINGS BEFORE AO AND THE C ORRECT EXPLANATION BASED ON FACTS ON RECORD WAS GIVEN BEFORE CIT(A) WHICH WAS CROSS CHECKED. HOWEVER CIT(A) INSTEAD OF REFERRING TO CALORIFIC V ALUE AND OTHER PARAMETERS DID NOT CONSIDER THE EXPLANATION OBJECT IVELY AND BY RELYING ON ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 17 DIFFERENCE IN EXPLANATION OF THE ASSESSEE UPHELD TH E ADDITIONS BY REJECTING BOOKS OF ACCOUNTS. 4.12. LEANED COUNSEL CONTENDS THAT THERE IS NO ALLE GATION THAT THE ASSESSEE SOLD THE COAL OUT OF BOOKS OF ACCOUNT OR MANUFACTUR ED PAPER AND SOLD IT OUTSIDE THE BOOKS OF ACCOUNT. THE DISALLOWANCE ON P URCHASE OF COAL IS UNCALLED FOR. 5. LEARNED DR SUPPORTED THE ORDER OF LOWER AUTHORIT IES. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT CLEARLY EMERGES FROM THE RE CORD THAT THE ASSESSEES BOOKS OF ACCOUNT WHICH ARE STATUTORILY AUDITED WER E NOT FOUND TO BE CONTAINING ANY DEFECT IN RECORDING OF COAL PURCHASE D OR NON-MAINTENANCE OF ANY SUPPORTING RECORD. THE PURCHASE OF COAL IS PROP ERLY VOUCHED TWO OF THE SUPPLIERS ARE GOVERNMENT AGENCIES AND OTHER M/S RE LIANCE COAL. ALL THE BILLS AND VOUCHERS WERE PRODUCED PURCHASES OF FUEL ARE THROUGH A/C PAYEE CHEQUES WHICH ARE NOT DISPUTED. PARAMETERS B C. E AS LISTED BY CIT(A) ARE REASONABLE COMPARABLE AND ABOUT F I.E. AVERAGE SE LLING EXPENSES CAN ALSO BE CALLED COMPARABLE I.E. 13.12 AND 11.96. THE ADVE RSE INFERENCE TO REJECT THE BOOKS OF ACCOUNT HAS BEEN DRAWN ON ACCOUNT OF C OMPARISON OF STEAM GENERATION AND AVERAGE RATE OF PRODUCTION. IN OUR V IEW WHEN THE BOOKS OF ACCOUNT ARE DULY MAINTAINED NO DEFECTS ARE FOUND A ND 4 SUCH PARAMETERS ARE REASONABLY COMPARABLE THEN BY OVERALL COMPARISONS OF YIELD OR STEAM GENERATION THE BOOKS OF ACCOUNTS CANNOT BE REJECTE D. 6.1. HONBLE DELHI HIGH COURT AND VARIOUS OTHER HIG H COURTS AS MENTIONED ABOVE HAVE HELD THAT WHEN THE BOOKS OF A CCOUNTS OF THE ASSESSEE ARE DULY MAINTAINED AND AUDITED EVEN IN CASE OF DE FICIENCY OF CERTAIN RECORDS OR RECONCILIATION THEY CANNOT LEAD TO REJE CTION OF BOOKS E.G. STOCK REGISTER CONFIRMATION OF EXPENSES ETC. THE EXCESSI VE CONSUMPTION OF COAL ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 18 MAY LEAD TO AN INFERENCE THAT ASSESSEES MANAGEMEN T IS NOT WORKING IN AN EFFICIENT/ BUSINESS TYPE MANNER BY CONSUMING MORE COAL; THE FACT REMAINS THAT THE ASSESSEES OVER ALL G.P. HAS INCREASED IN THIS YEAR. THIS ASSUMPTION CANNOT BE A BASIS FOR REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE. THERE IS NO ALLEGATION THAT ASSESSEE SOLD THE COAL OUT OF TH E BOOKS OF ACCOUNT OR MANUFACTURED MORE PAPER AND SOLD IT OUTSIDE THE BO OKS OF ACCOUNT. IN VIEW OF THESE FACTS WE SEE NO JUSTIFICATION IN THE ADDI TIONS. RESPECTFULLY FOLLOWING THE ABOVE HIGH COURT JUDGMENTS WE HOLD THAT THE IM PUGNED ADDITION ON ACCOUNT OF EXCESSIVE CONSUMPTION OF COAL IS UNJUSTI FIED AND IS DELETED. 7. COMING TO REVENUES APPEAL LEARNED DR RELIED ON THE ORDER OF AO. 8. LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER H AND CONTENDS THAT CIT(A) HAS DELETED THE ADDITION ON ACCOUNT OF DEPRE CIATION; U/S 2(22)(B); AND U/S 40(A)(IA) RED WITH SEC. 43B BY FOLLOWING OB SERVATIONS: DEPRECIATION : 3.3. AS STATED EARLIER THE ISSUE RELATING TO THE CLAIM OF DEPRECIATION WAS REMANDED TO THE AO AND BEFORE SUBM ITTING HER REPORT SHE HAD EXAMINED ALL THE EVIDENCES WHICH HAV E BEEN FILED BY THE APPELLANT COMPANY AND ADMITTED BY THE UNDERSIGNED IN EXERCISE OF THE POWERS U/S 250(4) READ WITH RULE 46A OF THE IT RULES 1962. A PERUSAL OF REPORT SUBMITTED BY THE AO CLEARLY SUGGESTS THAT NO SIGNIFICANT DISCREPANCIES HAVE BEE N POINTED OUT BY HER SO FAR AS THE ACQUISITION OF ASSETS IN QUEST ION IS CONCERNED. THE DISCREPANCIES POINTED OUT BY THE LD. AO ARE BASICALLY RELATING TO PROCEDURAL LAPSES COMMITTED B Y THE ACCOUNTS DEPARTMENT OF THE APPELLANT COMPANY IN MAK ING ENTRIES WITH REGARD TO THE ACTUAL DATE OF RECEIPT OF ASSETS AT THE FACTORY PREMISES OF THE APPELLANT COMPANY. THE OTHE R DISCREPANCIES HIGHLIGHTED BY THE LD. AO ARE TO THE EFFECT THAT THE BILLS WERE BEING RECEIVED BY THE APPELLANT COMP ANY MUCH AFTER THE DATE OF ACQUISITION OF ASSETS. IN SOME OT HER CASES THE ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 19 MODE OF TRANSPORT OR THE AMOUNT OF FREIGHT/CARTAGE ETC. PAID BY THE APPELLANT WERE NOT MENTIONED IN THE BILLS/INVOI CES. HOWEVER ALL THESE DISCREPANCIES ARE SUCH WHICH IN NO WAY DISPROVE THE ACQUISITION OF FIXED ASSETS AND USER T HEREOF FOR THE PURPOSE OF BUSINESS DURING THE YEAR UNDER CONSIDERA TION. FURTHER IN THE COURSE OF APPELLATE PROCEEDINGS AL L THE BILLS AND VOUCHERS PERTAINING TO THE ACQUISITION OF THE ASSET S AS PER ANNEXURES A-1 A-2 AND A-3 FORMING PART OF THE ASSE SSMENT ORDER WERE CALLED FOR BY THE UNDERSIGNED AGAIN AND EXAMINED IN DETAIL. ON EXAMINATION OF THESE DOCUMENTS I FIND THAT THE AO AHS NOT REALLY MADE OUT ANY CASE FOR DISALLOWANCE O F DEPRECIATION AND ADDITIONAL DEPRECIATION. SIMILAR I S THE POSITION WITH RESPECT TO THE ASSETS PURCHASED IN THE PRECEDI NG FINANCIAL YEAR AND INSTALLED RUING THE YEAR UNDER CONSIDERATI ON. 3.3.1. FURTHER IT WAS POINTED OUT BY THE LD. COUNS EL IN THE COURSE OF APPELLATE PROCEEDINGS THAT WHILE EXAMININ G THE CASE FOR ASSESSMENT YEAR 2006-07 THE LD. AO HAD ALL OVE R AGAIN CALLED FOR AND EXAMINED THE ENTIRE EVIDENCE PERTAIN ING TO THE ACQUISITION OF FIXED ASSETS DURING THE FY 2004-05 A ND THEREAFTER ONLY ALLOWED DEPRECIATION ON THE WDV OF THE ASSETS. IT WAS ALSO SUBMITTED BY HIM THAT IN FINANCIAL YEAR 2006-07 THE COMPANY HAD SUO MOTO HIRED THE SERVICES OF QUALIFIED PROFES SIONALS FOR VERIFICATION AND RECLASSIFICATION OF FIXED ASSETS I NSTALLED AT THE BUSINESS PREMISES OF THE APPELLANT COMPANY. IN THE COURSE OF SAID VERIFICATION ALL THE ASSETS ARE CLAIMED TO HA VE BEEN FOUND AVAILABLE AT THE PREMISES AND A COPY OF THE INSPECT ION/ VERIFICATION REPORT IS CLAIMED TO HAVE BEEN FILED BEFORE THE AO. 3.3.2. IN VIEW OF THE FOREGOING DISCUSSION AND IN THE LIGH T OF DETAILED SUBMISSIONS AND VOLUMINOUS EVIDENCE PRODUC ED IN THE COURSE OF APPELLATE PROCEEDINGS I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION AND ADDITIONAL DEPRECIATION ON ACCOUNT OF PROCEDURAL/ ACCOUNTING MISTAKE COMMITTED BY THE ACCOUNTS DEPARTMENT OF THE APPELLANT COMPANY. ACCORDINGLY THE AO IS DIRECTED TO ALLOW THE AFORES AID CLAIM OF THE APPELLANT COMPANY. ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 20 U/S 2(22)(B) 5. GROUND NO. 9 PERTAINS TO AN ADDITION OF RS. 11 51 790 MADE BY THE LD. AO IN TERMS OF SECTION 2(22)(B) OF THE IT ACT. BRIEFLY STATED THE FACTS LEADING TO THIS ADDITION ARE THAT WHILE EXAMINING THE AUDIT REPORT THE LD. AO NOTICED THAT THE AUDITORS IN SCHEDULE 1 OF THE BALANCE SHEET HAVE MENTIONED T HAT ISSUED SUBSCRIBED AND PAID UP SHARE CAPITAL INCLUDES 1151 79 EQUITY SHARES OF RS. 10/- EACH ISSUED FULLY PAID TO THE SH ARE HOLDERS OF ERSTWHILE R.C. VANASPATI LTD. ON ACCOUNT OF MERGER. ACCORDINGLY HE WAS OF THE VIEW THAT AT THE TIME OF AMALGAMATION OF R.C. VANASPATI LTD. THE PROMOTERS O F THE SAID COMPANY WERE GIVEN BONUS SHARES OF THE VALUE OF RS. 11 51 790 WHICH WERE TO BE TREATED AS DEEMED DIVIDEND U/S 2(2 2) OF THE IT ACT. THEREFORE HAVING OBTAINED EXPLANATION OF THE ASSESSEE COMPANY HE MADE THE SUBJECT DISALLOWANCE. 5.1. IN THE COURSE OF APPELLATE PROCEEDINGS THE LD . COUNSEL FOR THE APPELLANT HAS VEHEMENTLY ARGUED AND SUBMITT ED THAT HE ADDITION MADE BY THE LD. AO IS NOT JUSTIFIABLE AND HE IS ALSO NOT CORRECT IN SAYING THAT THE SHARES OF THE VALUE OF R S. 11 51 790 WERE ISSUED TO THE PROMOTERS OF THE ASSESSEE COMPAN Y AS BONUS SHARES. IT IS SUBMITTED BY THE LD. COUNSEL THAT R.C . VANASPATI LTD. HAD GOT MERGED WITH THE APPELLANT COMPANY AND IN TERMS OF THE ORDER OF THE HONBLE DELHI HIGH COURT THE ER STWHILE SHAREHOLDERS OF M/S R.C. VANASPATI LTD. WERE TO BE ISSUED SHARES IN THE RATIO OF 1 SHARE FOR EVERY 14 SHARES HELD IN R.C. VANASPATI LTD.. AS PER THE LD. COUNSEL IT WAS IN T HESE CIRCUMSTANCES THAT 115179 EQUITY SHARES OF RS. 10 E ACH WERE ISSUED TO THE SHAREHOLDERS OF M/S R.C. VANASPATI LT D. IN SUPPORT OF THIS ARGUMENT THE LD. COUNSEL HAS MADE THE FOLLOWING WRITTEN SUBMISSIONS: COPY OF AUDITED BALANCE SHEET IS PLACED ON RECORD AND IT WILL BE APPRECIATED THAT INCREASE IN SHARE CAPITAL IS ONLY ON ACCOUNT OF SHARES AS A RESULT OF MERGER OF /S R.C. VANASPATI LTD. WITH THE APPELLANT COMPANY AS PER ORDER OF HONBLE DELHI HIGH COURT. THE FACTUAL POSITION TO THIS EFFECT IS SUPPORTED FROM SCHEDULE FORMING PART OF AUDITED ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 21 BALANCE SHEET AND AS SUCH OBSERVATION AND BASIS OF ADDITION U/S 2(22)(E) IS FACTUALLY AND LEGALLY NOT CORRECT. 5.2. THE SUBMISSIONS MADE ON BEHALF OF THE APPELLAN T COMPANY AND DOCUMENTS NAMELY THE AUDIT REPORT AND THE BALANCE SHEET HAVE BEEN CAREFULLY PERUSED. ON CONSI DERATION I FIND THAT THE SUBMISSIONS MADE ON BEHALF OF THE APP ELLANT COMPANY DESERVE TO BE ALLOWED. A PERUSAL OF THE BAL ANCE SHEET CLEARLY REVEALS THAT NO BONUS SHARES HAVE BEEN ISSU ED EITHER TO THE PROMOTERS OR TO THE SHAREHOLDERS OF ERSTWHILE M /S R.C. VANASPATI LTD. THUS THE VERY BASIS ON WHICH THE SUB JECT ADDITION WAS MADE IS FOUND TO BE MISSING IN THE PRE SENT CASE. ACCORDINGLY THE ADDITION OF RS. 11 51 790/- IS HER EBY DELETED. U/S 40(A)(I-A) 6. THE NEXT GROUND PERTAINS TO A DISALLOWANCE OF R S. 10 655 325/- MADE BY THE AO IN TERMS OF SECTION 40( A)(IA). A PERUSAL OF ASSESSMENT ORDER REVEALS THAT THE SUBJEC T DISALLOWANCE WAS MADE BY THE LD. AO ON ACCOUNT OF T HE FACT THAT THE TAX DEDUCTED BY THE APPELLANT COMPANY ON S ALARIES PROFESSIONAL SERVICES AND CONTRACTS WAS NOT PAID TO THE CREDIT OF THE GOVERNMENT ACCOUNT BEFORE THE DUE DATE I.E. 07- 04-2005 INSTEAD THE SAME WAS PAID 09-04-2005. 6.1. THE LD. COUNSEL FOR THE APPELLANT COMPANY HAS POINTED OUT THAT AS PER THE AMENDED PROVISIONS APPLICABLE W .E.F. 1-4- 2005 NO DISALLOWANCE IS CALLED FOR IF THE TAX DED UCTED IN THE LAST MONTH OF THE PREVIOUS YEAR IS PAID TO THE CRED IT OF GOVERNMENT ACCOUNT ON OR BEFORE THE DUE DATE FOR FI LING OF RETURN OF INCOME U/S 139(1) OF THE IT ACT. ON CONS IDERATION THE SUBMISSION MADE BY THE APPELLANT COMPANY IS FOU ND TO BE IN ORDER AND ACCORDINGLY THE DISALLOWANCE MADE BY THE AO IS BEING DELETED. 8.1. APROPOS THE ISSUE OF DEPRECIATION THE LEARNED COUNSEL CONTENDS THAT BEFORE AO SOME BILLS OF MACHINERY COULD NOT BE PROD UCED WHICH WERE FILED BEFORE LEARNED CIT(A) WHO DULY ADMITTED THE SAME A S ADDITIONAL EVIDENCE ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 22 WHICH HAS NOT BEEN CHALLENGED BY THE REVENUE. CIT(A ) CALLED FOR REMAND REPORT FROM AO WHICH POINTED OUT SOME TECHNICAL OBJ ECTIONS LIKE THE DELIVERY BEING EARLIER THAN THE DATE OF SALE BILL A ND SIMILAR TECHNICAL ISSUES. CIT(A) AFTER EXAMINATION OF THE RECORD HELD THAT THE ASSETS WERE PURCHASED BY THE ASSESSEE AND WERE USED IN ITS BUSINESS. CIT( A) HAS GIVEN FACTUAL FINDING ON THE BASIS OF MATERIAL AVAILABLE ON RECOR D AND A REMAND REPORT CALLED FROM AO. THE ALLOWANCE OF DEPRECIATION UPHEL D BY CIT(A) BEING ON VERIFICATION OF PROPER RECORD THERE SHOULD NOT BE ANY GRIEVANCE FOR THE REVENUE. IN SUBSEQUENT YEARS THE AO HAS ALLOWED THE DEPRECIATION ON SUCH FIGURES BY ASSESSMENTS U/S 143(3). 8.2. COMING TO THE ISSUE ABOUT 2(22)(E) AO MISCONC EIVED THE FACTS TO BE BY WAY OF BONUS SHARES WHEREAS THE RECORD CLEARLY DEMONSTRATED THAT THE SHARES WERE ISSUED CONSEQUENT TO HIGH COURT ORDER O N MERGER OF M/S R.C. VANASPATI LTD. WITH THE ASSESSEE COMPANY. THE ISSUE IN QUESTION BEING NOT OF BONUS SHARE THE CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION IN QUESTION. 8.3. COMING TO SEC. 40(A)(IA) LEARNED COUNSEL CONT ENDS THAT THE SAME IS IN ACCORDANCE WITH LAW. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. COMING TO THE ISSUE O F DEPRECIATION WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) INASMUCH AS THE AO S OBJECTIONS TAKEN UP BY THE LEARNED DR ARE IN RESPECT OF DIFFERENCE IN S OME DATES. IN OUR VIEW WHEN THE CIT(A) HAS PROPERLY ADMITTED THE ADDITIONA L EVIDENCE AND CALLED FOR A REMAND REPORT WHICH DOES NOT IN ANY WAY DISP UTE THE ACQUISITION OF ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 23 ASSETS. THE OBJECTIONS MADE BY AO IN RESPECT OF BIL LS OF THE MACHINERY BEING ISSUED ON SUBSEQUENT DATES HAVE BEEN CONSIDERED BY CIT(A) AND THEREAFTER A CLEAR FINDING OF FACT HAS BEEN GIVEN THAT THE ASSET S WERE UTILIZED FOR THE BUSINESS OF THE ASSESSEE. CIT(A)S FINDING IS FURTH ER JUSTIFIED FROM THE FACT THAT IN SUBSEQUENT YEARS REVENUE ITSELF HAS ALLOWED DEPRECIATION ON THEE LINES ON SUCH ASSETS. THEREFORE WE UPHOLD THE ORDE R OF CIT(A) ON THIS ISSUE. 9.1. COMING TO THE ISSUE ABOUT SEC. 2(22)(E) IN OU R VIEW THE DISALLOWANCE WAS EFFECTED BY THE AO ON MISCONCEPTION OF FACT ABO UT BONUS SHARES. IN FACT THE SHARES WERE ISSUED CONSEQUENT TO HIGH COURTS ORDER ON MERGER OF R.C. VANASPATI. THE FACTS HAVE BEEN CORRECTLY APPRECIATE D BY THE CIT(A) IN DELETING THE ADDITION IN QUESTION. WE SEE NO INFIRM ITY IN THE ORDER OF CIT(A) ON THE ISSUE IN QUESTION AND UPHOLD THE SAME. 9.2. COMING TO THE ISSUE ABOUT 40(A)(IA) WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) AS IT HAS NOT BEEN DISPUTED THAT THE ASSE SSEE MADE THE PAYMENT OF TDS BEFORE THE DUE DATE FOR FILING OF THE RETURN. T HIS GROUND OF REVENUE IS ALSO REJECTED. 10. IN THE RESULT RESULT REVENUES APPEAL IS DISM ISSED. 11. COMING TO THE REVENUES APPEAL FOR A.Y. 2007-08 BOTH THE PARTIES AGREED THAT THE REVENUES GROUND IS CONSEQUENTIAL T O THE ISSUE OF DEPRECIATION IN A.Y. 2005-06. 12. WE HAVE ALREADY UPHELD THE ORDER OF CIT(A) ALLO WING THE DEPRECIATION AS CLAIMED BY THE ASSESSEE BY REJECTING THE GROUND TAKEN BY THE REVENUE FOR ITA 635 1078 & 4396/DEL/10 M/S KHANNA PAPER MILLS PVT. LTD. 24 A.Y. 2005-06. THE ORDER OF THE CIT(A) FOR A.Y. 2007 -08 BEING IN CONSONANCE WITH HIS ORDER FOR A.Y. 2005-06 WE SEE NO REASON TO INTERFERE IN HIS ORDER. ACCORDINGLY ORDER OF CIT(A) FOR A.Y. 20 07-08 IS UPHELD. 13. IN THE RESULT ASSESSEES APPEAL FOR A.Y. 2005- 06 IS ALLOWED AND THE REVENUES APPEALS FOR A.Y. 2005-06 AND 2007-08 ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR