VIJAY INDUSTRIES, Alwar v. TRO, Alwar

ITA 902/JPR/2010 | 2006-2007
Pronouncement Date: 23-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 90223114 RSA 2010
Assessee PAN AAAFV7282R
Bench Jaipur
Appeal Number ITA 902/JPR/2010
Duration Of Justice 1 year(s) 2 month(s) 16 day(s)
Appellant VIJAY INDUSTRIES, Alwar
Respondent TRO, Alwar
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 23-09-2011
Assessment Year 2006-2007
Appeal Filed On 07-07-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 902/ JP/2010 ASSESSMENT YEAR: 2006-07 PAN: AAAFV 7282 R M/S. VIJAY INDUSTRIES VS. THE T.R.O. CINEMA ROAD WARD- 2 KHAIRTHAL ALWAR ALWAR (APPELLANT ) (RESPONDENT) ITA NO. 952/ JP/2010 ASSESSMENT YEAR: 2006-07 PAN: AAAFV 7282 R THE DCIT VS. M/S. VIJAY INDUSTRIES CIRCLE- 1 CINEMA ROAD ALWAR KHAIRTHAL ALWAR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JOHRI ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 07-09-2011 DATE OF PRONOUNCEMENT:23-09-2011 ORDER PER N.L. KALRA AM:- THE ASSESSEE AS WELL AS REVENUE HAVE FILED APPEA LS AGAINST COMBINED ORDER OF THE LD. CIT(A) ALWAR DATED 30-03 -2010 FOR THE ASSESSMENT YEAR 2006-07. 2 2.1 DURING THE COURSE OF HEARING THE LD. AR OF THE ASSESSEE HAS NOT PRESSED THE GROUNDS OF APPEAL NO. 1 AND 2 HENCE THE SAME ARE DISMISSED BEING NOT PRESSED. 3.1 THE THIRD GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE TRADING ADDITION TO RS. 3.0 0 LACS AS AGAINST TRADING ADDITION OF RS. 15.00 LACS MADE BY THE AO. 3.2 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN REDUCING THE TRADING ADDITION BY RS. 12.00 LACS. 3.3 THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AN D TRADING OF MUSTARD OIL AND OIL CAKE. THE AO EXAMINED THE BOOKS OF ACCO UNTS AND HELD THAT THE BOOKS OF ACCOUNTS ARE NOT ACCEPTABLE ON ACCOUNT OF FOLLOWING REASONS THOUGH THE RESULTS DECLARED BY THE ASSESSEE ARE BET TER AS COMPARED TO THE PRECEDING YEAR. A. THERE IS VARIATION IN MONTHWISE YIELD OF MUSTARD OI L AND MUSTARD CAKE. B. DESPITE FALL IN SALES THERE IS INCREASE IN PACKING SALES PROMOTION AND LOADING & UNLOADING CHARGES. C. CLOSING STOCK IS WORKED OUT ON THE BASIS OF G P RAT E WHICH IS NOTHING BUT MANAGING THE GROSS PROFIT DECLARED. D. ROYALTY CHARGED FROM DEEPAK VEGPRO PVT. LTD. AND SA URABH AGROTECH (P) LTD. SHOULD BE BASED ON QUANTITY OF OIL SOLD IN STEAD OF CHARGING A 3 FIXED AMOUNT WHICH IS NOTHING BUT THE MODUS OPERAND I OF THE ASSESSEE NOT SHOWING THE ACTUALLY ROYALTY RECEIVED. E. RECORDS OF QUALITY OF MUSTARD SEEDS PURCHASED AND C RUSHED IS NOT MAINTAINED. F. NO DAILY QUANTITATIVE CONSUMPTION RECORDS ARE MAINT AINED IN RESPECT OF CONSUMABLE STORE VIZ. COAL WOOD. THESE CLAIMS ARE NOT SUBJECT TO VERIFICATION. G. THE ASSESSEES BASIS OF VALUATION OF CLOSING STOCK IS NOT FULLY VERIFIABLE. H. GENUINENESS OF PURCHASES FROM SISTER CONCERNS IS NO T VERIFIABLE. I. IN CASE OF SISTER CONCERN GP RATE OF 9.12% HAS BEEN DECLARED. THE ASSESSEE WAS NOT ABLE TO JUSTIFY COMPARATIVELY LOWE R GP RATE OF 6.85%. 3.4 THE LD. CIT(A) OBSERVED THAT THE AO HAS POINTE D OUR VARIOUS DEFECTS AND THEREFORE TRADING ADDITION IS JUSTIFIED. HOWE VER CONSIDERING THE SUBMISSIONS OF THE LD. AR THE LD. CIT(A) RESTRICTE D THE TRADING ADDITION TO RS. 3.00 LACS TO MEET THE ENDS OF JUSTICE. 3.5 WE HAVE HEARD BOTH THE PARTIES. IN THE IMMEDIA TELY PRECEDING YEAR THE AO MADE THE TRADING ADDITION OF RS. 7.50 LACS WHICH WAS RESTRICTED TO RS. 1.50 LACS BY THE LD. CIT(A). THE TRIBUNAL VIDE ORDER DATED 30-07-2010 DELETED THE TRADING ADDITION AFTER OBSERVING AS UND ER:- 6. AFTER CONSIDERING THE RIVAL CONTENTIONS OF BOT H THE PARTIES AND THE DECISION OF JURISDICTIONAL HIGH COU RT IN THE CASE 4 OF CIT VS. GOTAN LIME KHANIJ UDYOG 256 ITR 243 P LACED BY THE LD.AR WE ARE OF THE VIEW THAT THE AO HAS FAIL ED TO MAKE OUT THE CASE FOR ADDITION OF RS. 7.50 LACS AND THE LD. CIT(A) HAS WITHOUT GIVING THE CONCRETE FINDINGS RESTRICTED THE SAME TO RS. 1.50 LACS. THEREFORE THE ADDITION RESTRICTED BY LD . CIT(A) TO RS. 1.50 LACS IS HEREBY DELETED. THUS THE SOLITARY GROU ND OF REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS AL LOWED. SINCE THE FACTS ARE SIMILAR TO THE FACTS OF THE PRE CEDING YEAR AND THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE WE HOLD THAT THE IT WAS NOT A CASE OF MAKING ANY TRADING ADDITIO N. IT IS NOTICED THAT THE TRADING RESULTS DECLARED DURING THE YEAR ARE BETTER . THUS THE TRADING ADDITION AS CONFIRMED BY THE LD. CIT(A) IS DELETED. THE GROU ND NO. 3 OF THE ASSESSEE IS ALLOWED AND GROUND NO. 1 OF THE REVENUE IS DISMI SSED. 4.1 THE 4TH GROUND OF APPEAL OF THE ASSESSEE IS THA T THE LD. CIT(A) HAS ERRED IN HOLDING THAT PROVISIONS OF SECTION 14A ARE APPLICABLE AND CONFIRMED THE DISALLOWANCE OF RS. 11 26 190/-. 4.2 THE ASSESSEE HAS SHOWN FOLLOWING INVESTMENTS IN ITS BALANCE SHEET FOR THE YEAR ENDED ON 31 ST MARCH 2006. BUILDING PURCHASED AT HANUMAN NAGAR JAIPUR RS. 64 65 000/- SHARES IN INDIAN COMPANIES I.E. GROUP COMPANIES RS . 18 77 160/- TOTAL RS. 83 42 160/- 5 4.3 THE AO OBSERVED THAT ASSESSEE DOES NOT HAVE INT EREST FREE FUNDS. AS PER PROVISIONS OF SECTION 14A READ WITH GENERAL PRI NCIPAL OF SECTION 37(1) THE EXPENSES WHICH CAN ATTRIBUTABLE TO THE CURRENT YEARS TAXABLE INCOME ARE ONLY ALLOWABLE THEREFORE THE INTEREST AS WELL AS OTHER ESTABLISHMENT COST UPTO THE PROPORTIONATE EXTENT TO THE FUNDS DIVERTED ARE REQUIRED TO BE DISALLOWED. ACCORDINGLY HE DISALLOWED INTEREST AND OTHER EXPENSES @ 13.5% OF THE ALLEGED FUNDS DIVERTED I.E. RS. 11 26 190 (83 42 160 * 13.5%) U/S 14A. 4.4 THE CIT (A) HAS DIRECTED THE A O TO REWORK OUT THE DISALLOWANCE BY GIVING FOLLOWING FINDINGS:- IT IS SEEN THAT THE A O IS JUSTIFIED IN INVOKING T HE PROVISION OF SECTION 14A OF THE INCOME TAX ACT 196 1 UNDER THE GIVEN CIRCUMSTANCES ON THE GROUNDS AS MENTIONED IN THE ASSESSMENT ORDER. HOWEVER WHILE MAKING THE DISALLOW ANCE HE OUGHT TO HAVE BROUGHT CLARITY REGARDING THE INCOME EARNED AND EXPENDITURE MADE FOR EARNING SUCH INCOME. ON THE OT HER HAND THE AR OUGHT TO HAVE ASSISTED THE A O IN CLARIFYING THE POSITION FOR DETERMINING WHETHER DISALLOWANCE NEEDED TO BE M ADE U/S 14A OF THE I. T. ACT. THE AR SHALL FURNISH THE COMP LETE INFORMATION TO THE A O. AFTER EXAMINING THE SAME TH E A O SHALL WORK OUT THE DISALLOWANCE U/S 14A OF THE I. T. ACT. THIS GROUND OF APPEAL IS PARTLY ALLOWED . 6 4.5 DURING THE COURSE OF HEARING THE LD. AR OF THE ASSESSEE SUBMITTED AS UNDER:- 1. AT THE OUTSET IT MAY BE POINTED OUT THAT FROM THE INVESTMENT MADE IN BUILDING AT HANUMAN NAGAR ASSESSEE HAS DECL ARED RENTAL INCOME OF RS. 2 16 000/- WHICH IS OFFERED FO R TAX. THUS THIS INVESTMENT IS YIELDING TAXABLE INCOME. SE C 14A THEREFORE CANNOT BE APPLIED IN RESPECT OF THIS INV ESTMENT. EVEN THE AO HAS ASSESSED THE NOTIONAL INCOME FROM T HIS PROPERTY AT RS. 4 32 000/-. THIS APART ASSESSEE HAS RECEIVED INTEREST FREE ADVANCE OF RS. 50 LACS FROM M/S VIJAY SOLVEX LTD. (PB 17) TO WHOM PROPERTY IS GIVEN ON RENT. HENCE IN RESPECT OF THIS INVESTMENT DISALLOWANCE OF INTEREST MADE BY THE AO AND DIRECTION GIVEN BY THE CIT (A) TO REWORK OUT THE DISALLOWANCE IS INCORRECT AND THE AO BE DIRECTED NO T TO CONSIDER THIS INVESTMENT FOR DISALLOWANCE U/S 14A. 2. SO FAR AS DISALLOWANCE U/S 14A IN RESPECT OF INVEST MENT IS SHARES IS CONCERNED IT MAY BE NOTED THAT HONBLE S UPREME COURT IN CASE OF CIT VS. WALFORT SHARE & STOCK BROK ERS PVT. LTD. 326 ITR 001 IN PARA 17 HAS OBSERVED THAT FOR ATTRACTION SECTION 14A THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD VS. DCIT 328 ITR 81 ORDER DT. 7 12.08.2010 HAS HELD THAT RULE 8D IS APPLICABLE FRO M A.Y. 08-09 & THE SAME CAN NOT BE APPLIED FOR EARLIER A.Y .S BUT AT THE SAME TIME OBSERVED THAT AO IS DUTY BOUND TO COM PUTE THE DISALLOWANCE BY APPLYING A REASONABLE METHOD HA VING REGARD TO THE FACTS & CIRCUMSTANCES OF THE CASE. AF TER THIS ORDER OF BOMBAY HIGH COURT DT. 12.08.2010 VARIOUS H IGH COURTS & THE TRIBUNALS HAVE TAKEN THE FOLLOWING VIE W IN THE MATTER OF DISALLOWANCE U/S 14A. 4.6 THE LD. AR OF THE ASSESSEE HAS RELIED ON FOLLOW ING DECISIONS:- 1. CIT VS. GUJARAT POWER CORPORATION LTD. ORDER DT. 28.03.2011 IN THIS CASE IT WAS HELD THAT ASSESSEE HAD DEMONSTR ATED THAT IT HAD OTHER SOURCES OF INVESTMENT & ACCORDING TO ASSE SSEE NO PART OF BORROWED FUNDS COULD BE STATED TO HAVE BEEN DIVE RTED TO EARN TAX FREE INCOME. WHEN CIT(A) & TRIBUNALS BOTH ON FA CTS IN THE PRESENT CASE FOUND THAT ASSESSEE DID NOT INVEST BOR ROWED FUNDS FOR EARNING INTEREST FREE INCOME NOT APPLYING PROV ISIONS OF SECTION 14A FOR TAXING SUCH INTEREST WAS JUSTIFIED. 2. MINDA INVSETMENT LTD. VS. DCIT 52 DTR 001 ORDER DT. 13.10.2010 DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE IN RELATION TO EXEMPT INCOME & WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED DISALLOWANCE U/S 14A COULD NOT STAND. 3. DCIT VS. MAHARASHTRA SEAMLESS LTD. 52 DTR 005 ORDE R DT. 16.12.2010 8 IN THIS CASE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE HAD MAINTAINED THAT INTEREST EXPENDITURE W AS INCURRED IN RESPECT OF BORROWING ON CASH CREDIT LIMITS UTILIZED FOR NORMAL BUSINESS PURPOSE OF THE ASSESSEE & NO PART OF BORRO WED FUNDS HAS BEEN UTILIZED FOR MAKING INVESTMENT IN TAX FREE BON DS & THAT THE AO HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE BORROW ED FUNDS & THE INVESTMENT IN TAX FREE BONDS. THESE FINDINGS OF CIT(A) WAS HELD JUSTIFIED & IT WAS HELD THAT WHERE FUNDS ARE M IXED & IT IS NOT POSSIBLE TO ASCERTAIN AS TO WHETHER INVESTMENT IN T AX FREE BONDS WAS OUT OF ASSESSEES OWN FUND THE AO DID NOT ESTA BLISH NEXUS BETWEEN BORROWED FUNDS & THE INVESTMENT IN TAX FREE BONDS IN SUCH CASES APPORTIONMENT ON PRO RATA BASIS WAS IMPR OPER IN THE ABSENCE OF ANY THING BROUGHT BY THE AO TO REBUT THE ASSESSEES STAND THAT THE INVESTMENT IN TAX FREE BONDS HAD BEE N MADE OUT OF THE FUNDS OF THE SHAREHOLDERS. 4.7 THE LD. AR OF THE PRAYED THAT IN VIEW OF ABOVE THE AO MAY BE DIRECTED TO INVOKE 14A ONLY IF RELATIONSHIP OF EXPENSES WITH EX EMPT INCOME IS ESTABLISHED. IF THERE IS NO EXEMPT INCOME OR NO RELATIONSHIP OF EXP ENSES WITH EXEMPT INCOME IS ESTABLISHED NO DISALLOWANCE OUT OF EXPENSES BE MAD E. 4.8 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S SHOWN THE RENTAL INCOME FROM BUILDING PURCHASED AT HANUMAN NAGAR JA IPUR. SECTION 14A IS APPLICABLE IN RESPECT OF DEDUCTION RELATING TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THEREFORE INVESTMENT MAD E IN PROPERTY AT HANUMAN NAGAR CANNOT BE CONSIDERED FOR THE PURPOSE OF ASCER TAINING THE DISALLOWANCE U/S 14A OF THE ACT. IF THE ASSESSEE HAS MADE INVEST MENT IN SHARES AND THE ASSESSEE IS NOT TRADER IN SHARES THEN ASSESSEE WHIC H EARNS THE INCOME FROM SHARES IS ONLY DIVIDEND AND SINCE THE DIVIDEND IS E XEMPT THEREFORE SECTION 9 14A IS APPLICABLE. RELIANCE IS PLACED ON THE DECISI ON OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEELA RAMCH ANDARAN 2010-TIOL- 541-HC-KERALA.. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD.. 323 ITR 518 HELD THAT THE AO SHOULD RECORD THE FINDING THAT EXPENDITURE HAS BEEN INCURRED IN EARNI NG THE EXEMPT INCOME. WITHOUT RECORDING SUCH A FINDING DISALLOWANCE CANN OT BE MADE. IN THE INSTANT CASE THE AO HAS DISALLOWED ONLY INTEREST A ND HAS NOT CONSIDERED ANOTHER EXPENDITURE TO BE DISALLOWED U/S 14A. HENCE THE AO SHOULD ESTABLISH THE NEXUS BETWEEN BORROWED FUNDS AND INVE STMENT IN SHARES AND WILL ACCORDINGLY DISALLOW THE INTEREST. 5.1 THE 5 TH GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO OBTAIN RENT FROM THE S IMILARLY PLACED PROPERTY. 5.2 DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E RECEIVED RENT FROM THE PROPERTY SITUATED AT D-47 HANUMAN NAGAR JAIPU R OF RS. 2 16 000/- FROM TWO CONCERNS DETAILS OF WHICH ARE AS UNDER: - VIJAY SOLVEX LTD. 1 80 000/- DATA INFOSYS LTD. 36 000/- THE A O HELD THAT THE ASSESSEE WHILE DECIDING THE R ENT TO BE CHARGED HAS TAKEN INTO CONSIDERATION THE RATE OF INTEREST CHARG ED BY THE BANK INSTEAD OF 10 TAKING INTO CONSIDERATION THE PROVISIONS OF SECTION 23 OF THE INCOME TAX ACT WHICH DEALS WITH THE MATTER REGARDING HOW ANNUAL VA LUE OF HOUSE PROPERTY IS TO BE DETERMINED. ACCORDINGLY HE ESTIMATED THE ANNU AL VALUE OF THE SAID PROPERTY AT RS. 4 32 000/-. 5.3 THE LD CIT (A) DIRECTED THE A O TO OBTAIN THE R ENT OF SIMILARLY PLACED PROPERTY IN SIMILARLY PLACED CIRCUMSTANCES AND APPL Y THE SAME TO THE INSTANT CASE FOR ASSESSING THE INCOME. 5.4 DURING THE COURSE OF HEARING THE LD. AR SUBMIT TED THROUGH ITS WRITTEN SUBMISSION AS UNDER:- 1. SECTION 23 ANNUAL VALUE HOW DETERMINED (REL EVANT EXTRACT) BE READ AS UNDER: (1) FOR THE PURPOSE OF SECTION 22 THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS L ET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THER EOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) THE AMOUNT SO RE CEIVED OR RECEIVABLE; OR ------------- ------------- THERE IS NO DISPUTE THAT IN THE PRESENT CASE THE AS SESSEE HAS ACQUIRED THE BUILDING FOR A SUM OF RS. 64.65 LACS F OR WHICH INTEREST FREE LOAN OF RS. 50 LACS IS GIVEN BY ONE OF THE TENANT M /S. VIJAY SOLVEX LTD (PB 17) . HENCE INVESTMENT OF ASSESSEES OWN FUNDS IS ONLY TO THE EXTENT OF RS. 14.65 LACS. ON THIS AMOUNT RENT OF RS. 2 16 000 /- GIVES A RETURN OF 15% P.A. CONSIDERING THE PREVAILING MARKET RATE OF RETURN ON INVESTMENT RENT RECEIVED @ 15% IS IN EXCESS OF THE SUM FOR WHI CH THE PROPERTY MIGHT 11 REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. HE NCE THE SUM RECEIVED IS THE ANNUAL VALUE OF THE PROPERTY OWNED BY THE ASSES SEE. 2. WITHOUT PREJUDICE TO ABOVE HAD THE ASSESSEE NOT RECEIVED INTEREST FREE LOAN FROM M/S. VIJAY SOLVEX LTD HE WOULD HAVE TO ARRANGE FUNDS FROM SOME WHERE ELSE ON INTEREST WHICH WOULD HAVE BEEN A LLOWED DEDUCTION U/S 24(2) ON ACCOUNT OF INTEREST PAYMENT ON BORROWED CA PITAL FOR PURCHASE OF THE BUILDING. RESULTANTLY THE INCOME FROM HOUSE PRO PERTY WOULD HAVE BEEN NIL COMPUTED AS FOLLOWS: ANNUAL VALUE AS COMPUTED BY THE A O RS. 4 32 000 /- LESS: INTEREST PAYMENT ON LOAN OF RS. 50 LAC @ 13.5 % RS. 6 75 000/- (RATE AS TAKEN BY THE A O FOR DISALLOWANCE OF INTER EST) INCOME FROM HOUSE PROPERTY AFTER CONSIDERING THE DE DUCTION TO THE EXTENT OF ANNUAL VALUE NIL IN VIEW OF ABOVE THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS THE ANNUAL VALUE WHICH HAS BEEN RIGHTLY OFFERED BY THE ASSESSE E. HENCE THE DIRECTION OF CIT (A) TO REWORK OUT THE ANNUAL VALUE CONSIDERING THE COMPARABLE INSTANCES IS UNDESIRABLE AND THE AO BE DIRECTED TO ACCEPT THE RE NT DECLARED BY THE ASSESSEE. 5.5 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE DEL HI HIGH COURT IN ITS FULL BENCH DECISION IN THE CASE OF CIT VS. MONI KUM AR SUBBA 333 ITR 38 HAS LAID DOWN THE FOLLOWING PRINCIPLES TO DETERMINE THE ANNUAL LETTING VALUE. : (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MA Y BE REASONABLY LET OUT BY A WILLING LESSOR TO A WIL LING LESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES. (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REA SONABLENESS. (III) ACTUAL RENT RECEIVED IN NORMAL CIRCUMSTANCES WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED /DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION. 12 (IV) SUCH ALV HOWEVER CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY. (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING O FFICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT IF THE F AIR RENT IS LESS THAN THE STANDARD RENT THEN IT IS THE FAIR R ENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. THE HON'BLE DELHI HIGH COURT ALSO HELD THAT NOTIONA L INTEREST ON INTEREST FREE SECURITY DEPOSIT CANNOT BE ADDED FOR ARRIVING AT TH E ANNUAL LETTING VALUE (ALV). WE THEREFORE UPHOLD THE FINDINGS IN RESTORI NG THE ISSUE. HOWEVER THE AO WILL FOLLOW THE PRINCIPLES GIVEN BY HON'BLE DELHI HIGH COURT IN DETERMINING THE ALV. HENCE THIS ISSUE IS RESTORED BACK ON THE FILE OF THE AO. 6.1 THE 6 TH GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING A SUM OF RS. 1.00 LAC OUT OF DI SALLOWANCE OF PACKING MATERIAL EXPENSES. 6.2 THE THIRD GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS. 1.00 LAC AS AGAINST RS. 6 30 218/- MADE BY THE AO ON ACCOUNT OF PACKIN G MATERIAL EXPENSES. 13 6.3 THE ASSESSEE CLAIMED PACKING MATERIAL EXPENSES FOR THE YEAR AT RS. 26 30 218/-. THE AO OBSERVED THAT PACKING MATERIAL EXPENSES CLAIMED IS ON HIGHER SIDE AS COMPARED TO PRECEDING YEAR DESPITE T HE FACT THAT DURING THE YEAR UNDER CONSIDERATION VOLUME OF TURNOVER HAS DEC REASED. HE FURTHER HELD THAT THE ASSESSEE COULD NOT FURNISH ANY RECORD WHIC H CAN REPRESENT THE CONSUMPTION OF PACKING MATERIAL AS WELL AS GOODS RE MAINED IN STOCK. THE REPLY OF THE ASSESSEE REGARDING COMPARATIVELY MORE SALE OF OIL IN PACKED CONDITION IN THIS YEAR IS NOT SUPPORTED WITH THE RE CORDS MAINTAINED. THE AO ACCORDINGLY ALLOWED PACKING MATERIAL EXPENSES TO RS . 20 00 000/- AND DISALLOWED THE BALANCE RS. 6 30 218/- . 6.4 THE LD. CIT (A) CONFIRMED THE REASONING GIVEN B Y THE A O FOR MAKING THE DISALLOWANCE BUT RESTRICTED THE DISALLOWANCE TO RS. 1 00 000/- BY CONSIDERING THE DISALLOWANCE ON HIGHER SIDE. 6.5 THE LD. AR OF THE ASSESSEE THROUGH HIS WRITTEN SUBMISSION HAS SUBMITTED AS UNDER:- COPY OF LEDGER ACCOUNT OF PACKING MATERIAL EXPENS ES IS AT PB 20- 32 . PACKING MATERIAL EXPENSES ARE FULLY VOUCHED. THE A O DID NOT POINT OUT ANY DISCREPANCY IN THE DETAILS SUBMITTED BEFORE HIM. REGARDING JUSTIFICATION FOR THE INCREASE IN THE PACKING MATER IAL EXPENSES IT IS SUBMITTED THAT ASSESSEE SOLD MORE QUANTITY OF OIL I N PACKED CONDITION THAT TOO IN SMALLER PACKS AS COMPARED TO THE LAST YEAR. DURING THE YEAR UNDER 14 CONSIDERATION TOTAL NUMBER OF PACKING MATERIAL USE D WAS 16 40 580 NOS. WHEREAS CORRESPONDENCE FIGURES FOR THE LAST YEAR WA S 11 65 815 NOS. FOR WHICH DETAILS ARE ENCLOSED. THUS THE PER UNIT OF PA CKING MATERIAL EXPENSES COMES TO RS. 1.60 AS AGAINST RS. 1.87 IN THE LAST Y EAR (PB 19) . THUS INSTEAD OF INCREASE IN PACKING MATERIAL EXPENSES THERE IS DECREASE IN THE SAME. IN VIEW OF THIS NO DISALLOWANCE IS CALLED FOR AND THE SAME BE DELETED IN ITS ENTIRETY. THE GROUND OF THE DEPARTMENT BE THUS DISM ISSED BY ALLOWING THE GROUND OF THE ASSESSEE. 6.6 WE HAVE HEARD BOTH THE PARTIES. THE PACKING MAT ERIALS EXPENSES ARE FULLY VOUCHED. THE ASSESSEE GAVE THE JUSTIFICATION FOR INCREASE IN PACKING MATERIAL EXPENSES. SINCE THE EXPENSES ARE FULLY VOU CHED AND NO SPECIFIC DISCREPANCY HAS BEEN NOTICED BY THE AO THEREFORE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) TO THE EXTENT OF RS. 1.00 LAC IS DELETED. THUS GROUND NO. 6 OF THE ASSESSEE IS ALLOWED AND GROUND NO. 3 OF THE REVENUE IS DISMISSED. 7.1 THE 7TH GROUND OF APPEAL OF THE ASSESSEE IS THA T THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 50 000/ - OUT OF LOADING AND UNLOADING EXPENSES. 7.2 THE 4TH GROUND OF APPEAL OF THE REVENUE IS THA T THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO RS. 50 000 /- AS AGAINST RS. 2 32 140/- MADE BY THE AO. 15 7.3 THE ASSESSEE CLAIMED LOADING & UNLOADING EXPEN SES OF RS. 16.66 347/- ON TOTAL SALES OF RS. 34 55 26 342/- AS AGAINST THE EXPENSES OF RS. 16 03 023/- CLAIMED IN PRECEDING YEAR ON TOTAL SALES OF RS. 39 61 98 046/-. THE AO HELD THAT ASSESSEE COULD NOT EXPLAIN THE ABNORMAL INCREASE IN LOADING AND UNLOADING EXPENSES. HE THER EFORE DISALLOWED RS. 2 32 140/- KEEPING IN VIEW THE PERCENTAGE OF EXPENS ES CLAIMED IN THE PRECEDING YEAR. 7.4 THE LD. CIT (A) CONFIRMED THE REASONING GIVEN B Y THE AO FOR MAKING THE DISALLOWANCE BUT RESTRICTED THE DISALLOWANCE TO RS. 50 000/- TO MEET THE ENDS OF JUSTICE AFTER FINDING THAT THERE IS SUBSTAN CE IN THE SUBMISSION OF ASSESSEE AND BY CONSIDERING THE DISALLOWANCE ON HIG HER SIDE. 7.5 DURING THE COURSE OF HEARING THE LD. AR OF THE ASS ESSEE THROUGH HIS WRITTEN SUBMISSION SUBMITTED AS UNDER:- COPY OF LEDGER ACCOUNT OF LOADING & UNLOADING EXPENSES IS AT PB 33-34 . ALL EXPENSES ARE FULLY VOUCHED. THE AO DID NOT POINT OUT ANY DISCREPANCY IN THE DETAILS SUBMITTED BEFORE HIM. THE EXPENSES HAVE BEEN INCURRED ON DAY TO DAY BASIS. THE ASSESSEE HAS DEDUCTED THE TAX UPON THE P AYMENT OF RS. 16 66 347/- WHICH HAS BEEN PAID TO THE CONTRACT ORS. ON ACCOUNT OF SALE OF FINISHED GOODS IN SMALL PACKING THE EXPENSES UNDER THIS HEAD HAS GONE UP WHICH FACTS HAVE REMAI NED 16 UNCONTROVERTED. IN REGARD TO THE JUSTIFICATION FOR THE INCREASE IN THE LOADING AND UNLOADING EXPENSES IT IS SUBMITTED THAT IN TERMS OF AMOUNT THERE IS AN INCREASE IN THE LOADING AND U NLOADING EXPENSES. HOWEVER WITH REFERENCE TO TOTAL NUMBER OF PACKING MATERIAL USED THE SAME IS ON LOWER SIDE IN AS MUCH AS PACKING MATERIAL NUMBERING 4 74 765 WHERE CONSUMED MORE DUR ING THE YEAR AS COMPARED TO THE LAST YEAR WHICH RESULTED IN INCREASE IN LOADING UNLOADING EXPENSES AND THAT TOO MARGINALLY BY RS. 63 000/- ONLY IN VIEW OF THIS NO DISALLOWANCE IS C ALLED FOR AND THE SAME BE DELETED IN ITS ENTIRETY. THE GROUND OF THE DEPARTMENT BE THUS DISMISSED BY ALLOWING THE GROUND OF THE ASSESSEE. 7.6 WE HAVE HEARD BOTH THE PARTIES. WE HAVE CONSIDE RED THE SUBMISSIONS GIVEN BY THE LD. AR OF THE ASSESSEE. IN THE WRITTEN SUBMISSION IT IS MENTIONED THAT THERE IS MARGINAL INCREASE IN THE LO ADING AND UNLOADING EXPENSES. THE EXPENSES ARE SUPPORTED WITH INTERNAL VOUCHERS. WE THEREFORE FEEL THAT DISALLOWANCE WAS REQUIRED TO BE MADE AS S UCH EXPENSES ARE NOT FULLY VERIFIABLE. LOOKING TO THE FACT THAT THERE HA S BEEN AN INCREASE IN LOADING AND UNLOADING EXPENSES TO THE EXTENT OF RS. 63 000/ - WE THEREFORE FEEL THAT THE DISALLOWANCE IS TO BE RESTRICTED TO RS. 70 000/ -.. THUS GROUND NO. 7 OF THE ASSESSEE IS DISMISSED AND GROUND NO. 4 OF THE R EVENUE IS PARTLY ALLOWED. 17 8.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 5 91 163/- MA DE BY THE AO U/S 41(1) OF THE ACT. 8.2 THE AO HAS ADDED A SUM OF RS. 5 91 163/- ON ACC OUNT OF UNVERIFIABLE SUNDRY CREDITORS. THE AO NOTICED THAT THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS. THE AO HIMSELF NOTICED THAT NUMBE R OF ENTRIES WHICH ARE NOT REPORTED BY THE AO TO THESE ENTRIES ARE AVAILAB LE AT PAGES 11 OF THE ASSESSMENT ORDER. 8.3 THE LD. CIT(A) HAS MENTIONED THAT LD. AR OF THE ASSESSEE HAS FILED THE CONFIRMATION FROM SUNDRY CREDITORS. IT MEANS THAT T HERE WERE ADDITIONAL EVIDENCES FILED BEFORE THE LD. CIT(A). THE LD. CIT( A) ON THE BASIS OF THE DETAILS FURNISHED BEFORE HIM DELETED THE ADDITION. 8.4 WE HAVE HEARD BOTH THE PARTIES. SINCE THE ADDIT IONAL EVIDENCES HAVE NOT BEEN CONFRONTED TO THE AO THEREFORE THIS ISSU E IS REQUIRED TO BE RECONSIDERED AFRESH BY THE AO AFTER CONSIDERING THE ADDITIONAL EVIDENCES FILED BEFORE THE LD. CIT(A). FOR DECIDING THE ISSUE AFRESH THE AO WILL PROVIDE OPPORTUNITY TO THE ASSESSEE. 18 9. IN THE RESULT THE APPEALS OF THE ASSESSEE AND T HE REVENUE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23-09 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 23/09/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. VIJAY INDUSTRIES ALWAR 2. THE T.R.O. WARD- 2/ DCIT CIRCLE- 1 ALWAR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.902/JP /11) A.R ITAT JAIPUR 19 20 21