ACIT, Warangal v. M/s Kavuri Polymers, Warangal

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CH ANDRA POOJARI ACCOUNTANT MEMBER . ITA NOS.823& 1104/HYD/09 : ASSESSMENT YEA RS 2005-06 &2003-04 ACIT CIR-1 WARANGAL. VS M/S. KAVURI POLYMERS WARANGAL. PAN:AADFK 4716A (APPELLANT) (RESPONDENT) ITA NO. 788/HYD/09 ASSESS MENT YEAR 2005-06 M/S. KAVURI POLYMERS ACIT CIR-1 WARANGAL. WARANGAL. PAN:AADFK 4716A (APPELLANT) (RESPONDENT) DEPARTMENTT BY : SHRIK.V.N. CHARYA ASSESSEE BY : SHRI K. VASANT KUMAR O R D E R PER G.C. GUPTA VICE PRESIDENT THESE APPEALS BY THE REVENUE FOR THE ASSESSMENT YEARS 2005-06 2003-04 AND BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) AND 2 THESE ARE BEING DISPOSED OFF BY THIS CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. 2. ITA NO.823/HYD/09- ASSESSMENT YEAR 2005-06 (REVENUE'S APPEAL) :- GROUND NOS. 1 TO 5 OF THE REVENUE ARE AS UNDER:- 1. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE DECISION OF THE HON'BLE ITAT 'B' BENCH HYDERABAD I N THE CASE OF KREBS BIOCHEMICALS INDUSTRIES LIMITED HYDE RABAD (ITA NO.1035 & 1036/HYD/2006 FOR THE ASSESSMENT YEA RS 2002-03 AND 2003-04) I.E. ORDER DATED 29-1-2008 W HICH SQUARELY COVERS THE PRESENT CASE AS THE FACTS ARE I DENTICAL TO THE CITED CASE. 2. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE FACT THAT THE ASSESSEE HAD NO EVIDENCE SUCH AS MAKING OF ADJUSTMENT IN THE SALES TAX ASSESSMENT ORDER OR IN THE BOOKS OF GOVERNMENT ACCOUNT TO ESTABLISH THAT THE S ALES TAX LIABILITY WAS CONVERTED INTO A LOAN. 3. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE FACT THAT THE ASSESSEE HAD MISINTERPRETED BEFORE HIM REG ARDING THE REASONS FOR THE DECISION BY THE ADMINISTRATIVE CIT IN THE PROCEEDINGS U/S 263 IN THE EARLIER ASSESSMENT YEAR I.E. 2003-04. 3 4. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE FACT THAT THE COURSE OF THE 263 PROCEEDINGS FOR EARLIER ASSESSMENT YEAR 2003-04 THE ASSESSEE HAD TIME AND AGAIN PRODU CED SOME CONTRIVED SO-CALLED AGREEMENTS WITH SOME SALE S TAX AUTHORITIES WHICH WERE FOUND DEVOID OF EVIDENTIARY VALUE AS SUCH DOCUMENTS A PART FROM OTHER DEFECTS WERE FO UND TO RELATE TO LATER PERIOD. 5. THE CIT(A) ERRED IN FACTS AND IN LAW IN RELAYING ON UNREPORTED CASE OF THE HON'BLE ITAT A- BENCH OF HYDERABAD IN THE CASE OF NAGARJUNA AGROTECH LIMITED CITED BY THE ASSESSEE WHERE THE FACTS AND CIRCUMSTANCES A RE APPARENTLY DIFFERENT. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT THE PROVISIONS OF SECTION 43B ARE APPLICABLE TO THE AMO UNT OF UNPAID SALES TAX LIABILITY AND WAS RIGHTLY DISALLOWED BY T HE ASSESSING OFFICER. IT IS A FACT THAT THE ASSESSEE HAS NOT REM ITTED THE AMOUNT OF UNPAID SALES TAX TO THE STATE GOVERNMENT BY THE END OF RELEVANT ACCOUNTING PERIOD. HE REFERRED TO THE RELEVANT PAR AS OF THE ASSESSMENT ORDER IN SUPPORT OF HIS ARGUMENT. HE RE LIED ON THE DECISION OF HYDERABAD TRIBUNAL IN ITA NOS. 1035 & 1 036/HYD/2006 IN SUPPORT OF HIS ARGUMENT. 4 3. THE LEARNED COUNSEL FOR THE ASSESSEE HAS OPPOSED THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTAT IVE. HE SUBMITTED THAT THE ASSESSEE WAS AWARDED SALES-TAX D EFERRAL SCHEME UNDER THE STATE INCENTIVE SCHEME FOR SETTING UP IND USTRIES VIDE ORDER OF THE DEPARTMENT OF INDUSTRIES GOVERNMENT OF ANDH RA PRADESH DATED 11-3-1999. UNDER THIS SCHEME THE ASSESSEE IS PERMITTED TO RETAIN THE SALES TAX COLLECTED FROM ITS CUSTOMERS F OR ITS REPAYMENTS AFTER A PERIOD OF 14 YEARS. THIS DEFERRED AMOUNT S TANDS CONVERTED AS INTEREST FREE LOAN IN THE RECORDS OF STATE GOVERNME NT AND THEREFORE HAS LOST ITS CHARACTER OF A CURRENT LIABILITY AND A CCORDINGLY THE PROVISIONS OF SECTION 43B OF THE ACT ARE NOT APPLIC ABLE. IT WAS SUBMITTED THAT THE AGREEMENT WITH GOVERNMENT DATES BACK WITH THE DATE OF THE SCHEME AND THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THIRD MEMBER BENCH OF HYDERABAD TRIBUNAL DATED 29-8-2006 IN THE CASE OF DY. CIT VS. NAGARJUN A AGROTECH LIMITED WHEREIN HELD THAT THE PERMISSION OF CONVERT ING SALES TAX LIABILITY INTO LOAN SHALL RELATE BACK TO THE DATE F OR WHICH THE LIABILITY WAS CONVERTED INTO THE LOAN AND THE SALES TAX PAYAB LE COULD NOT BE DISALLOWED UNDER SECTION 43B OF THE ACT. HE REFERRE D TO THE CIRCULAR OF THE CBDT NO.496 DATED 25-9-1987 AND NO.674 DATED 29-11-1993 IN SUPPORT OF HIS SUBMISSIONS. 5 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT THE ASSESSEE WAS AWARDED SALES-TAX DEFERRAL SC HEME UNDER THE STATE INCENTIVE SCHEME FOR SETTING UP INDUSTRIES VI DE ORDER OF THE DEPARTMENT OF INDUSTRIES GOVERNMENT OF ANDHRA PRAD ESH DATED 11- 3-1999. UNDER THIS SCHEME THE INDUSTRIAL UNIT OF THE ASSESSEE WAS PERMITTED TO RETAIN THE SALES TAX COLLECTED FROM IT S CUSTOMERS FOR A PERIOD OF 14 YEARS. THIS SCHEME OF THE STATE GOVERN MENT WAS REVISED AND AS PER THE PROVISION THEREOF THE DEFERR ED AMOUNT OF SALES TAX STANDS CONVERTED INTO INTEREST FREE LOAN IN THE RECORDS OF THE STATE GOVERNMENT THEREBY LOSING ITS CHARACTER OF CURRENT LIABILITY. IN THESE FACTS SINCE THIS DEFERRED AMOUNT HAS LOST ITS CHAR ACTER OF CURRENT LIABILITY WE ARE OF THE VIEW THAT THE PROVISIONS O F SECTION 43B ARE NOT APPLICABLE FOR SALES TAX DEFERRAL SCHEME. MOREO VER THE ASSESSEE HAS PRODUCED A DULY EXECUTED AGREEMENT WITH THE DEP ARTMENT OF COMMERCIAL TAXES TO THE EFFECT THAT THE AMOUNT OF D EFERRED SALES TAX LIABILITY SHALL BE CONVERTED AS INTEREST FREE LOANS IN THE RECORDS OF THE STATE GOVERNMENT. THE ONLY OBJECTION OF THE DEPART MENT WITH REGARD TO THIS AGREEMENT WAS THAT THIS AGREEMENT WA S ENTERED INTO WITH THE STATE GOVERNMENT AFTER THE ASSESSMENT PROC EEDINGS WERE COMPLETED. WE FIND THAT THIS ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE WITH THE DECISION OF THIRD MEMBER BENCH OF THE HYDERABAD TRIBUNAL DATED 29-8-2006 IN THE CASE OF DY. CIT VS . NAGARJUNA AGROTECH LIMITED WHEREIN HELD THAT ONCE THE AGREEME NT IS EXECUTED 6 IT DATES BACK TO THE ORIGINAL DATE OF SANCTION OF T HE SCHEME I.E. 11-3- 1999. WE FIND THAT THE DECISION OF THE HYDERABAD B ENCH OF THE TRIBUNAL RELIED UPON BY THE LEARNED DEPARTMENTAL RE PRESENTATIVE IS DISTINGUISHABLE SINCE THERE WAS NO AGREEMENT IN THA T CASE WITH THE STATE GOVERNMENT TO TREAT THE UNPAID AMOUNT AS A LO AN TO THE ASSESSEE. IN THESE FACTS OF THE CASE WE HOLD THAT THE SALES TAX AMOUNT COVERED UNDER THE DEFERRAL SCHEME OF THE STATE GOVE RNMENT COULD NOT BE DISALLOWED UNDER SECTION 43B OF THE ACT AND ACCORDINGLY THE GROUND NOS. 1 TO 5 RAISED BY THE REVENUE ARE DISMIS SED. 6. GROUND NOS. 6 AND 7 ARE AS UNDER:- '6. THE CIT(A) ERRED IN IGNORING THE FACTS AND CIRC UMSTANCES FOR MAKING THE DISALLOWANCE U/S 40(A)(IA) BROUGHT O N RECORD BY THE ASSESSING OFFICER UNDER PARA 2 AND 2. 1 OF THE ASSESSMENT ORDER. 7. THE CIT(A) ERRED IN FACTS AND IN LAW IN RELYIN G ON INAPPLICABLE DECISION RENDERED BY HIS PREDECESSOR I N THE CASE OF SRI N. RAMA CHANDRA REDDY (A.Y 2005-06) IN DECIDING THE ASSESSEE'S APPEAL RELATING TO 40(A)(IA ).' 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELI ED ON THE ORDER OF THE ASSESSING OFFICER AND HAS REFERRED THE RELEVANT PARAGRAPH 7 NOS. 2 AND 2.1 OF THE ASSESSMENT ORDER IN SUPPORT O F THE CASE OF THE DEPARTMENT. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT CALCUTTA BENCH REPORTED IN 34 SOT 332. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) . WE FIND THAT THE CIT (A) HAS PASSED A WELL-REASONED SPEAKING ORDER O N THIS ISSUE. WE FIND THAT THE PAYMENTS IN THIS CASE HAVE BEEN PAID TO THE VARIOUS LABOURERS ALTHOUGH THEY HAVE BEEN DEBITED IN THE B OOKS OF THE ASSESSEE IN THE NAME OF THE FIRST PERSON SRI V. RAM A RAO BUT THE FACT REMAINS THAT THE ACTUAL PAYMENT WAS MADE BY TH E ASSESSEE TO VARIOUS LABOURERS WHOSE NAMES ARE MENTIONED IN THE REGISTER OF LABOUR PAYMENTS. THE CIT(A) HAS REPRODUCED THE COPY OF ONE OF THE PAGES OF REGISTER OF LABOUR PAYMENT WHEREIN THE NAM ES OF 29 LABOURERS WERE ENTERED. THE CIT (A) IN HIS ORDER H AS REPRODUCED THE COPY OF ONE PAGE OF LABOUR CHARGES/LEDGER A/C. THE BASIC ISSUE IN THIS CASE WAS THAT WHETHER THE PROVISIONS OF SECTIO N 194C WAS APPLICABLE TO THE CASE OF THE ASSESSEE OR NOT. IN VIEW OF THE FACTUAL POSITION THAT THE PAYMENTS WERE MADE BY THE ASSESSE E TO VARIOUS LABOURERS AND THEIR NAMES WERE ENTERED INTO IN THE REGISTER OF LABOUR 8 PAYMENT AND THEIR THUMB IMPRESSION/ SIGNATURES WERE OBTAINED THEREIN AND THE PAYMENTS HAVING BEEN MADE TO VARIOU S LABOURERS THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 194C AND SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE CASE OF THE ASS ESSEE. THERE BEING NO MISTAKE IN THE ORDER OF THE CIT (A) ON THIS ISSU E THE ORDER OF THE CIT (A) IS CONFIRMED AND GROUND NOS. 6 AND 7 ARE DI SMISSED. 10. GROUND NO.8 READS AS UNDER:- '8. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORI NG THE VITAL FACT THAT THE PROVISION OF SECTION 40A(3) IS SQUARE LY APPLICABLE TO LABOUR PAYMENTS EXCEEDING RS.20 000 AGGREGATING TO RS.50 97 481 AS WORKED OUT BY THE ASSESSING OFFICER IN PARA 2.1 AND 2.2 OF THE ASSESS MENT ORDER. HENCE HE OUGHT TO HAVE DIRECTED THE ADDITI ON OF RS.10 19 496.' 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REL IED ON THE ORDER OF THE ASSESSING OFFICER. HE HAS REPEATED PA RA 2.3 OF THE ASSESSMENT ORDER IN SUPPORT OF THE CASE OF THE REVE NUE. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENTS OVER RS.20 000 WERE MADE TO 'SARDAR' AND W AS MEANT FOR 9 PAYMENT TO VARIOUS LABOURERS. WE HAVE CONSIDERED T HE RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE ASSE SSING OFFICER AND CIT (A). WE FIND THAT THE CIT (A) HAS PASSED A WEL L REASONED ORDER ON THIS ISSUE. THE FACT IS THAT THE PAYMENTS WERE M ADE TO VARIOUS LABOURERS BY THE ASSESSEE AND SIGNATURES/THUMB IMPR ESSION WAS OBTAINED IN THE REGISTER OF LABOUR PAYMENTS. THE L ABOURERS WOULD NOT LIKE TO ACCEPT THE CHEQUES DRAWN ON BANKS AND M OREOVER THEIR WORK SITES WERE NOT PERMANENT AND THEY WOULD MOVE F ROM ONE WORK SITE TO ANOTHER ONE ON COMPLETION OF A PARTICULAR W ORK AND AT A PARTICULAR SITE. IN THESE FACTS WE HOLD THAT THE P ROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE AND ACCORDINGLY THE ORDER OF T HE CIT (A) ON THIS ISSUE IS CONFIRMED AND GROUND NO.8 OF THE REVENUE S TANDS DISMISSED. 13. ITA NO.1104/HYD/09 (REVENUE'S APPEAL)- ASSESSME NT YEAR 2003-04 : 14. GROUND NO.1 RAISED IN THIS APPEAL IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 15. GROUND NOS. 2 & 3 ARE AS UNDER:- 10 '2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT (A) ERRED IN IGNORING THE FACT THAT THERE IS NO LIA BILITY TO COLLECT SALES TAX. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT (A) ERRED IN HOLDING THAT THE SALES-TAX DEFERRAL SC HEME APPLIES TO SALES TAX COLLECTIONS WHERE THERE IS NO LIABILITY CAST ON THE ASSESSEE TO COLLECT SALES TAX (RS.6 39 227).' BOTH THE PARTIES SUBMITTED THAT THESE GROUNDS OF AP PEAL ARE IDENTICAL TO THE ISSUE RAISED IN GROUND NOS. 1 TO 5 OF THE RE VENUE'S APPEAL FOR ASSESSMENT YEAR 2005-06 IN ITA NO.823/HYD/09. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FOR THE REASONS RECORDED BY US WHILE DISPOSING OF GROUND NOS. 1 TO 5 IN REVENUE'S APPEAL FOR ASSESSMENT YEAR 2005-06 IN THE FOREGOING PARAGRAPHS OF THIS ORDER WE DISMISS THE GROUND NOS. 2 AND 3 RAI SED BY THE REVENUE IN THIS APPEAL. 17. ITA NO.788/HYD/09 (ASSESSEE'S APPEAL)- ASSESSMENT YEAR 2005-06:- 18. GROUND NO.1 AND 6 ARE GENERAL IN NATURE AND REQ UIRE NO ADJUDICATION. 11 19. GROUND NO.2 RAISED BY THE ASSESSEE IS AS UNDER: - '2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.4 673 RELATING TO SALES-TAX CLAIM THOUGH THE ASSESSING OFFICER IN HIS REMAND REPORT HAS NOT STATED THAT TH E TDS CERTIFICATE IS NOT ON RECORD AND HAS STATED THAT IT CAN BE DECIDED ON MERITS ON THE GROUND THAT TDS CERTIFICATE IS NOT ON RECORD THOUGH THE SAME WAS VERY MUCH FILED BEFORE THE ASSE SSING OFFICER.' 20. WE HAVE HEAD THE PARTIES. WE FIND THAT THE CIT (A) HAS RECORDED THAT THE ASSESSEE HAS FILED NO TDS CERTIFI CATE TO EXPLAIN THE DIFFERENCE BETWEEN THE SALES TAX CLAIM BY THE ASSES SEE AND THE ACTUAL SALES TAX PAID AS PER THE TDS CERTIFICATES. IN THES E FACTS THE ADDITION MADE WAS RIGHTLY CONFIRMED BY THE CIT(A) AND WE DIS MISS THE GROUND NO.2 OF THE ASSESSEE. 21. GROUND NO.3 IS AS UNDER:- '3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.9 36 917 BEING 10% OF EXPENDITURE ON LABOUR O N THE GROUND THAT THE ASSESSEE HAS NOT PROVED EVEN DURING APPEAL PROCEEDINGS THE GENUINENESS IN SPITE OF THE FACT T HAT HE MADE DETAILED SUBMISSIONS GIVING COMPARISON WITH THE PRE VIOUS YEARS AND ALSO SUBMITTED THAT VOUCHERS ARE AVAILABL E FOR ALL HE EXPENSES.' 12 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE NECESSARY DETAILS WITH VOUCHERS WERE FILED IN SUPPO RT OF THE LABOUR EXPENSES CLAIMED BY THE ASSESSEE. 23. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE LABOUR EXPENSES ARE MERELY SUPPO RTED BY SELF- MADE VOUCHERS PRODUCED BY THE ASSESSEE AND DISALLOW ANCE AT THE RATE OF 10% OF THE EXPENDITURE WAS REASONABLE. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) . WE FIND THAT THE ASSESSEE HAS RECORDED THE NAMES OF THE PERSONS TO W HOM THE LABOUR CHARGES WERE PAID AND HAS OBTAINED THEIR THUMB IMPR ESSION/ SIGNATURES IN THE REGISTER OF LABOUR PAYMENT. THE PAYMENTS WERE PAID IN CASH AND ARE SUPPORTED BY SELF MADE VOUCHER S. IN THESE FACTS OF THE CASE WE ARE OF THE VIEW THAT ENDS OF JUSTIC E SHALL BE MET IF THE DISALLOWANCE UNDER THIS HEAD IS RESTRICTED TO 5% OF THE EXPENDITURE AS AGAINST 10% CONFIRMED BY THE CIT (A) AND ACCORDI NGLY GROUND NO.3 OF THE ASSESSEE IS PARTLY ALLOWED. 25. GROUND NO.4 OF THE ASSESSEE IS AS UNDER:- 13 '4. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE OF RS.4 50 000 FROM OUT OF RS. SIX LAKHS OF CHIT LOSS HOLDING THAT CHIT LOSS IS TO BE CLAIMED OVER A PERIOD OF TIME AN D NOT IN ONE YEAR WITHOUT APPRECIATING THE FACT THAT LOSS ACCRUE D DURING THE YEAR AND THERE IS NO PROVISIONS IN THE ACT TO DIFFE R CLAIM OF LOSS OVER A PERIOD OF TIME.' 26. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS A BID FOR A CHIT COVERING A PERIOD OF 50 MONTHS AND THE LOSS THEREOF WAS RIGHTLY DEBITED AS AN ALLOWABLE D EDUCTION TO THE ASSESSEE. HE SUBMITTED THAT THERE IS NO PROVISION U NDER THE ACT TO MAKE THE DISALLOWANCE ON ACCOUNT OF CHIT LOSS WHIC H WAS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE SUBMIT TED THAT THE BID AMOUNT WAS USED IN THE BUSINESS OF THE ASSESSEE AND THE REVENUE DID NOT DISPUTE THIS FACT. HE RELIED ON THE DECISION O F SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD. VS. CIT (1997) 225 ITR 802 AND IN THE CASE REPORTED IN 208 ITR 39 IN SUPPORT OF HIS ARGUMENTS. HE SUBMITTED THAT THERE IS NO SPECIFIC METHOD OF ACCOUNTING PRESCRIBED UNDER THE ACT FOR T REATING THE LOSS ON ACCOUNT OF CHIT. 27. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS OPP OSED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . HE SUBMITTED 14 THAT THE AMOUNT OF LOSS ON ACCOUNT OF CHIT BID IS N OT DETERMINED AND DEPENDS ON NUMBER OF FACTORS AND THEREFORE COULD NO T BE CLAIMED IN THE RELEVANT ASSESSMENT YEAR. HE SUBMITTED THAT NE ITHER THE ASSESSEE NOR THE DEPARTMENT WAS IN A POSITION TO ASCERTAIN T HE AMOUNT OF LOSS TO THE ASSESSEE WHICH IS ASCERTAINABLE DEPENDING ON FUTURE COURSE OF EVENTS IN THE SUBSEQUENT YEARS ONLY. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ASSESSEE HAS MADE A BID FOR A CHIT COVERING FOR A P ERIOD OF 50 MONTHS AND THE ASSESSEE HAD DEBITED THE ENTIRE AMOUNT OF C HIT LOSS I.E. RS. 6 LAKHS IN THE CURRENT FINANCIAL YEAR ITSELF. THE CA SE OF THE DEPARTMENT IS THAT THE LOSS HAS TO BE SPREAD OVER FOR FOUR YEA RS. THE ASSESSING OFFICER HAS DISALLOWED 75% OF THE CHIT LOSS AMOUNTI NG TO RS.4.50 LAKHS OUT OF THE CLAIM OF RS.6 LAKHS MADE BY THE AS SESSEE. WE FIND THAT THE CHIT LOSS COULD NOT BE ASCERTAINED DURING THE RELEVANT ACCOUNTING PERIOD. THE AMOUNT OF CHIT LOSS DEPENDS ON VARIOUS FACTORS INCLUDING WHAT AMOUNT OF BID THE OTHER CHIT HOLDERS WOULD MAKE IN THE SUBSEQUENT PERIODS AND THE AMOUNT OF DI VIDENDS TO BE DECLARED BY THE CHIT FUND YEAR AFTER YEAR. IN THES E FACTS WE HOLD THAT THE CHIT LOSS WAS NOT ASCERTAINABLE DURING THE PERI OD THE ENTIRE CHIT LOSS OF RS. 6 LAKHS IS NOT ALLOWABLE TO THE ASSESSE E. IN THESE FACTS OF THE CASE WE CONFIRM THE ORDER OF THE LEARNED CIT ( A) IN HOLDING THAT THE ASSESSEE HAS TO ACCOUNT FOR THE LOSS OVER A PER IOD OF TIME AND NOT 15 IN ONE YEAR AND THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER IS CORRECT. ACCORDINGLY GROUND NO.4 IS DISMISSED. 29. GROUND NO.5 OF THE ASSESSEE IS AS UNDER:- '5. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE OF RS.2 44 000 FROM ALL THE EXPENSES THOUGH THE ASSESS ING OFFICER HAS NOT CITED ANY SPECIFIC INSTANCE OF UNVERIFIABLE EXPENDITURE ON THE GROUND THAT EVEN DURING THE APPEAL PROCEEDIN GS THE GENUINENESS IS NOT PROVED.' 30. WE HAVE HEARD THE PARTIES. WE FIND THAT THE DI SALLOWANCES OUT OF VARIOUS EXPENSES DEBITED BY THE ASSESSEE WERE MA DE AT THE RATE OF 10% THEREOF. WE FIND THAT THE ASSESSEE HAS PRODUCE D THE NECESSARY DETAILS THEREOF ALTHOUGH THE SAME WAS SUPPORTED BY VOUCHERS AND IN SOME CASES SELF-MADE VOUCHERS ONLY. IN THE FACTS AND CONSIDERING THE PAST HISTORY OF THE CASE WE ARE OF THE VIEW TH AT THE ENDS OF JUSTICE SHALL BE MET IF THE DISALLOWANCE UNDER THIS HEAD IS RESTRICTED TO RS.1 25 000 AS AGAINST RS.2 44 000 SUSTAINED BY THE CIT(A) AND GROUND NO.5 OF THE ASSESSEE IS PARTLY ALLOWED. 16 31. IN THE RESULT THE APPEALS OF THE REVENUE FOR A SSESSMENT YEARS 2005-06 AND 2003-04 ARE DISMISSED AND THE ASSESSEE' S APPEAL FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 30 -4-2010. SD/- SD/- (CHANDRA POOJARI) (G.C GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT . DT/-30-4-2010. COPY FORWARDED TO: 1. ASSESSEE C/O SRI K. VASANT KUMAR ADVOCATE 403 MANISHA TOWERS 10-1-18/31 SHYAMNAGAR HYDERABAD-500 004. 2. 3. 4. THE ADDL CIT WRANGAL RANGE WARANGAL. CIT (A)-VI HYDERABAD. CIT A P HYDERABAD. 3. THE D.R. ITAT HYDERABAD JMR