SUMRAJ SEAFOODS P.LTD, MUMBAI V. D.C.I.T. 2(3), MUMBAI

CO 249/MUM/2012

• Counselvise Citation: [2017] 112 COUNSELVISE.COM (IT) 4537 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 09-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business income; Business expenditure; Opportunity of being heard; Principle of natural justice; TDS; Set aside
• Section: 143(3); 40(a)(ia); 37(1); 194C; 195; 143(2)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 8438/ MUM/2011 ( / ASSESSMENT YEAR : 2006-07) ACIT 2(3), R NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S SUMARAJ SEAFOODS P. LTD., 262, 2 ND FLOOR, R. NO. 20, CAPTAIN BUILDING, S.B. SINGH ROAD, FORT, MUMBAI 400 001. ./ PAN : AACCS2654B ( / APPELLANT ) .. ( / RESPONDENT ) CO NO.249/MUM/2012 (ARISING FROM APPEAL NO ITA 8438/MUM/2011) ( / ASSESSMENT YEAR : 2006-07) M/S SUMARAJ SEAFOODS P. LTD., 262, 2 ND FLOOR, R. NO. 20, CAPTAIN BUILDING, S.B. SINGH ROAD, FORT, MUMBAI 400 001. / V. ACIT 2(3), R NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AACCS2654B CROSS OBJECTOR .. ( / RESPONDENT ) REVENUE BY : SHRI V JUSTIN ASSESSEE BY : NONE / DATE OF HEARING : 10.08.2017 / DATE OF PRONOUNCEMENT : 18.08.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 2 THE APPEAL IS FILED BY THE REVENUE WHILE CROSS OBJE CTION IS FILED BY THE ASSESSEE COMPANY , BOTH ARE DIRECTED AGAINST THE AP PELLATE ORDERS PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 6, MU MBAI (HEREINAFTER CALLED THE CIT(A)) DATED 19.09.2011 PERTAINING TO THE AS SESSMENT YEAR 2006-07, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) HAD ARISEN OUT OF THE ASSESSMENT ORDER DATED 28.11.2008 PASSED BY THE LEA RNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INC OME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . THE AFORE-STATED R EVENUE APPEAL AND THE C.O. FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL IN THEIR APPEAL IN ITA NO. 8438/MUM/2011:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF RS. 4, 85,480/- ON ACCOUNT OF PROCESSING CHARGES WITHOUT APPRECIATING THE FACT THAT THERE WAS AN ABNORMAL INCREASE IN THIS ACCOUNT AND THE DISALLOWANCE MADE BY THE AO WAS REASONABLE AS THE T URNOVER INCREASE MARGINALLY COMPARED TO THE PRECEDING YEAR. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 8,30,395/- ON ACCOUNT OF ICE CHARGES WITHOUT APPRECIATING THE FAC T THAT THERE WAS AN ABNORMAL INCREASE IN THIS ACCOUNT AND THE DI SALLOWANCE MADE BY THE AO WAS REASONABLE AS THE TURNOVER INCRE ASED MARGINALLY COMPARED TO THE PRECEDING YEAR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 2,52,933/- ON ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 3 ACCOUNT OF CHEMICAL EXPENSES WITHOUT APPRECIATING T HE FACT THAT THERE WAS AN ABNORMAL INCREASE IN THIS ACCOUNT AND THE DISALLOWANCE MADE BY THE AO WAS REASONABLE AS THE T URNOVER INCREASED MARGINALLY COMPARED TO THE PRECEDING YEAR . 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUN T OF WORKMEN COMPENSATION OF RS. 4,15960/- WITHOUT GIVING ANY OP PORTUNITY TO THE AO AND WITHOUT ANY VERIFICATION OF THE ASSESSEE 'S CONTENTION AS NO DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSE SSEE BEFORE THE AO. 5(A). ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 32 ,44,766/- MADE U/S 40(A)(IA) WITHOUT VERIFYING WHETHER PAYMENTS WE RE REALLY MADE TO THE SHIPPING AGENT OF THE NON-RESIDENT SHIP OWNERS AS THE ASSESSEE NEVER FURNISHED THE DETAILS OF SHIP OW NER BEFORE THE AO. 5(B) WITHOUT PREJUDICE TO (A), ON THE FACTS AND CIR CUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWI NG ASSESSEE APPEAL ON THE BASIS OF BOARD'S CIRCULAR NO. 723 DAT ED 19.09.1995 WITHOUT PUTTING THE ASSESSEE TO TEST THAT PROVISION S OF SEC. 172 WERE OBSERVED OR NOT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE ESTIMATED DISALLOW ANCE OF RS. 3 LACS AS INTEREST CAPITALIZED WITHOUT APPRECIATING T HAT THE ASSESSEE FAILED TO ESTABLISH THAT IT CORRECTLY CAPITALIZED T HE INTEREST TO THE COST OF THE ASSETS ACQUIRED DURING THE COURSE OF AS SESSMENT PROCEEDINGS AS THE DATE OF INSTALLATION OF MACHINER Y REMAINED UNVERIFIED BY THE AO. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET A SIDE AND THAT OF THE AO RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF OPERATING COLD STORAGE FOR THE FREEZING , COLD STORING AND EXPORTING SEAFOOD OUT OF INDIA. ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 4 4. THE A.O. ON PERUSAL OF THE RECORDS AND SUBMISSIO NS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING U/S 143( 3) R.W.S. 143(2) OF THE 1961 ACT OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 48,54,802/- TOWARDS PROCESSING CHARGES. THE A.O. A SKED FOR THE DETAILS FROM THE ASSESSEE AND ON PERUSAL OF THE DETAILS OBSERVED THAT THE TURNOVER OF THE ASSESSEE HAD INCREASED ONLY 10% WHEREAS THE PROCESS ING CHARGES HAD INCREASED MULTIPLE TIME . THE AO OBSERVED THAT THE ASSESSEE HAD NOT GIVEN ANY SATISFACTORY REPLY ON THIS ISSUE, THE A.O. DISA LLOWED 10% OF RS. 48,54,802/- I.E. 4,85,480/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 28-11-2008 PA SSED BY THE AO U/S 143(3) OF THE 1961 ACT. ON FIRST APPEAL FILED BY TH E ASSESSEE WITH LEARNED CIT(A) BEING AGGRIEVED BY THE ASSESSMENT ORDER DATE D 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE LD. CIT(A) D ELETED ADDITIONS MADE BY THE A.O. ON THE GROUND THAT THERE WAS NO JUSTIFICAT ION AND COGENT REASONS GIVEN BY THE AO BACKED WITH EVIDENCES BEFORE MAKING SUCH ADHOC 10% DISALLOWANCE, VIDE APPELLATE ORDER DATED 19-09-2011 . AGGRIEVED BY THE APPELLATE ORDER DATED 19-09-2011 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR ALMOST TWO YEARS, THE ASSESSEE HAS NOT ENTERED APPEARANCE W HEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21-09-2016, 30-0 3-2017 AND FINALLY ON 10-08- 2017. THE LD. DR RELIED ON THE ASSESSMENT ORDER OF THE A. O. AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED AS THE T URNOVER OF THE ASSESSEE HAS ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 5 INCREASED ONLY 10% , WHEREAS THE PROCESSING CHARGES HAD INCREASED IN MULTIPLES. IT IS SUBMITTED THE ASSESSMENT ORDER OF THE A.O. SHOULD BE UPHELD. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIAL A VAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAS IN ITS PAPER BO OK FILED WITH THE TRIBUNAL ENCLOSED COPY OF AUDITED FINANCIAL STATEMENT AND TA X AUDIT REPORT FOR THE FINANCIAL YEAR ENDED 31-03-2006 (PB/PAGE 1-39), WHE REIN COPY OF P&L ACCOUNT IS FILED ALONG WITH ANNEXURES IS ALSO FILED , IT CAN BE SEEN THAT THE TURNOVER OF THE ASSESSEE HAS INCREASED FROM RS. 37. 06 CRORES DURING THE FINANCIAL YEAR 2004-05 TO 40.61 CRORES DURING FINA NCIAL YEAR 2005-06 AND THE GROSS PROFIT OF THE ASSESSEE HAS INCREASED TO RS.3. 94 CRORES DURING FINANCIAL YEAR 2005-06 FROM RS.3.37 CRORES DURING FINANCIAL Y EAR 2004-05. THUS, IT IS OBSERVED THAT THE GP RATIO HAS IMPROVED FROM 9.07% TO 9.70%. THE CLOSING STOCK OF FINISHED GOODS HAD ALSO INCREASED TO 11.69 CRORES DURING FINANCIAL YEAR ENDING 31-03-2006 FROM RS.8.02 CRORES LAST YEA R. THE PROCESSING CHARGES,NO DOUBT , HAD INCREASED TO RS. 48.54 LACS FOR THE FINANCIAL YEAR ENDING 31-03-2006 COMPARED TO RS. 27.06 LACS LAST Y EAR BUT NOTHING INCRIMINATING HAS BEEN BROUGHT ON RECORD BY THE AO TO SUGGEST THAT THERE HAS BEEN ANY ATTEMPT BY THE ASSESSEE TO CONCEAL INCOME , INFLATE EXPENSES OR DEFRAUD REVENUE OR MANIPULATE /FALSIFY ITS BOOKS OF ACCOUNT THEREOF. THE SAID PROCESSING CHARGES CONSTITUTE INSIGNIFICANT PROPORT ION OF THE TURNOVER ACHIEVED BY THE ASSESSEE AND MERE INCREASE OF PROCE SSING CHARGES TO RS. 48.54 LACS IN THE RELEVANT YEAR UNDER CONSIDERATION FROM RS. 27.06 LACS DURING PRECEDING YEAR NOT IN TANDEM WITH UPWARD MOV EMENT OF TURNOVER IS NOT IN ITSELF INDICATIVE OF ANY OVERT ATTEMPT BY TH E ASSESSEE TO CONCEALS ITS INCOME, INFLATE EXPENSES OR TO DEFRAUD REVENUE CALL ING FOR ADHOC DISALLOWANCE IN THE ABSENCE OF INCRIMINATING MATERIAL BROUGHT ON RECORD BY THE AO FOR WHICH ONUS WAS ON THE AO AS THE ASSESSEE DISCHARGED ITS PRIMARY ONUS BY BRINGING ON RECORD THE RELEVANT MATERIAL AND HENCE IS NOT IN ITSELF SUFFICIENT TO FASTEN TAX LIABILITY ON THE ASSESSEE. WE HAVE OB SERVED THAT THE A.O. HAS NOT ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 6 BROUGHT ON RECORD ANY COGENT INCRIMINATING MATERIAL , REASONS OR JUSTIFICATIONS WHILE MAKING ADHOC DISALLOWANCE OF 10% OF PROCESSING CHARGES EXCEPT TAKING A VIEW THAT TURNOVER OF THE ASSESSEE INCREASED BY 10% WHILE PROCESSING CHARGES INCREASED IN MULTIPLES WHICH IS NOT SUFFICIENT TO SUSTAIN DISALLOWANCE AND FASTEN TAX LIABILITY ON THE ASSESS EE, WHICH ADDITIONS IN OUR CONSIDERED VIEW WAS RIGHTLY DELETED BY LEARNED CIT( A) VIDE APPELLATE ORDER DATED 19-09-2011. THUS, UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE DECISION TAKEN BY THE LD . CIT(A) VIDE APPELLATE ORDER DATED 19-09-2011 WITH WHICH WE CONCUR AND APPELLATE ORDER OF LEARNED CIT(A) IS HEREBY CONFIRMED. WE, THEREFORE, DISMISS THE GR OUND RAISED BY THE REVENUE. THUS, REVENUE FAILS ON THIS GROUND. WE ORD ER ACCORDINGLY. 5. THE NEXT GROUND RELATES TO DISALLOWANCE OF ICE C HARGES TO THE TUNE OF RS.8,30,395/- ON ADHOC BASIS TO THE TUNE OF 25% OF TOTAL ICE CHARGES OF RS.33,21,580/- . THE A.O. ON PERUSAL OF THE RECOR DS AND SUBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDING U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT OBSERVED THAT THE ASSESSEE H AD DEBITED AN AMOUNT OF RS 33,21,580/- TOWARDS ICE CHARGES. THE A.O. ASKED FOR THE DETAILS FROM THE ASSESSEE AND ON PERUSAL OF THE DETAILS OBSERVED THA T THE TURNOVER OF THE ASSESSEE HAD INCREASED ONLY 10% WHEREAS THE ICE CHA RGES HAD INCREASED MULTIPLE TIME . THE AO OBSERVED THAT ASSESSEE HAD N OT GIVEN ANY SATISFACTORY REPLY, THE A.O. DISALLOWED 25% OF RS. 33,21,580/- I .E. 8,30,395/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASS ESSMENT ORDER DATED 28-11- 2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. O N FIRST APPEAL FILED BY THE ASSESSEE WITH LEARNED CIT(A) BEING AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE LD. CIT(A) DELETED ADDITION MADE BY THE A.O. ON THE GROUND THA T THERE WAS NO JUSTIFICATION AND COGENT REASONS GIVEN BY THE AO B ACKED WITH EVIDENCES BEFORE MAKING SUCH ADHOC 25% DISALLOWANCE, VIDE APP ELLATE ORDER DATED 19- ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 7 09-2011. AGGRIEVED BY THE APPELLATE ORDER DATED 19 -09-2011 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRI BUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR LAST ALMOST TWO YEARS, THE ASSESSEE HAS NOT ENTERED APPEA RANCE WHEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21-09- 2016, 30-03-2017 AND FINALLY ON 10-08-2017. THE LD. DR RELIED ON THE ASSESSMENT ORDER OF THE A. O. AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED AS THE T URNOVER OF THE ASSESSEE HAS INCREASED ONLY 10% , WHEREAS THE ICE CHARGES HAD IN CREASED IN MULTIPLES. IT IS SUBMITTED THE ASSESSMENT ORDER OF THE A.O. SHOULD B E UPHELD. WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AVAIL ABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAS IN ITS PAPER BOOK FI LED WITH THE TRIBUNAL ENCLOSED COPY OF AUDITED FINANCIAL STATEMENT AND TA X AUDIT REPORT FOR THE FINANCIAL YEAR ENDED 31-03-2006 (PB/PAGE 1-39), WHE REIN COPY OF P&L ACCOUNT IS ALSO FILED ALONG WITH ANNEXURES, IT CAN BE SEEN THAT THE TURNOVER OF THE ASSESSEE HAS INCREASED FROM RS. 37.06 CRORES DU RING THE FINANCIAL YEAR 2004-05 TO 40.61 CRORES DURING FINANCIAL YEAR 2005 -06 AND THE GROSS PROFIT OF THE ASSESSEE HAS INCREASED TO RS.3.94 CRORES DURING FINANCIAL YEAR 2005-06 FROM RS.3.37 CRORES DURING FINANCIAL YEAR 2004-05. THUS, IT IS OBSERVED THAT THE GP RATIO HAS IMPROVED FROM 9.07% TO 9.70%. TH E CLOSING STOCK OF FINISHED GOODS HAD ALSO INCREASED TO 11.69 CRORES D URING FINANCIAL YEAR ENDING 31-03-2006 FROM RS.8.02 CRORES LAST YEAR. THE ICE C HARGES , NO DOUBT , HAD INCREASED TO RS. 33.21 LACS FOR THE FINANCIAL YEAR ENDING 31-03-2006 COMPARED TO RS. 13.89 LACS LAST YEAR BUT NOTHING IN CRIMINATING HAS BEEN BROUGHT ON RECORD BY THE AO TO SUGGEST THAT THERE H AS BEEN ANY OVERT ATTEMPT ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 8 BY THE ASSESSEE TO CONCEAL INCOME , INFLATE EXPENSE S OR DEFRAUD REVENUE OR MANIPULATE /FALSIFY ITS BOOKS OF ACCOUNT THEREOF.. THE SAID ICE CHARGES CONSTITUTE INSIGNIFICANT PROPORTION OF THE TURNOVER ACHIEVED BY THE ASSESSEE AND MERE INCREASE OF ICE CHARGES TO RS. 33.21 LACS IN THE RELEVANT YEAR UNDER CONSIDERATION FROM RS. 13.89 LACS DURING PRECEDING YEAR NOT IN TANDEM WITH UPWARD MOVEMENT OF TURNOVER IS NOT INDICATIVE OF AN Y OVERT ATTEMPT BY THE ASSESSEE TO CONCEALS HIS INCOME, INFLATE EXPENSES O R TO DEFRAUD REVENUE CALLING FOR ADHOC DISALLOWANCE IN THE ABSENCE OF IN CRIMINATING MATERIAL BROUGHT ON RECORD BY THE AO FOR WHICH ONUS WAS ON T HE AO AS THE ASSESSEE DISCHARGED ITS PRIMARY ONUS BY BRINGING ON RECORD T HE RELEVANT MATERIAL. WE HAVE OBSERVED THAT THE A.O. HAS NOT BROUGHT ON RECO RD ANY COGENT INCRIMINATING MATERIAL , REASONS OR JUSTIFICATIONS WHILE MAKING ADHOC DISALLOWANCE OF 25% OF ICE CHARGES EXCEPT TAKING A VIEW THAT TURNOVER OF THE ASSESSEE INCREASED BY 10% WHILE ICE CHARGES INCREAS ED IN MULTIPLES WHICH IS NOT SUFFICIENT TO SUSTAIN DISALLOWANCE AND FASTEN T AX LIABILITY ON THE ASSESSEE, WHICH ADDITIONS IN OUR CONSIDERED VIEW WAS RIGHTLY DELETED BY LEARNED CIT(A) VIDE APPELLATE ORDER DATED 19-09-2011. THUS, UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE DECISION TAKEN BY THE LD. CIT(A) VIDE APPELLATE ORDER DATED 19-09-2011 WITH WHICH WE CONCUR AND APPELLATE ORDER OF LEARNED CIT(A) IS HEREBY CONFIRMED. WE, T HEREFORE, DISMISS THE GROUND RAISED BY THE REVENUE. THUS, REVENUE FAILS ON THIS GROUND.WE ORDER ACCORDINGLY. 6. THE NEXT GROUND RELATES TO DISALLOWANCE OF CHEMI CAL EXPENSES TO THE TUNE OF RS.2,52,933/- ON ADHOC BASIS TO THE TUNE OF 10% OF TOTAL CHEMICAL EXPENSES OF RS. 25,29,331/- . THE A.O. ON PERUSAL OF THE RECO RDS AND SUBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDING U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT OBSERVED THAT THE ASSESSEE H AD DEBITED AN AMOUNT OF RS 25,29,331/- TOWARDS CHEMICAL EXPENSE. THE A.O. ASKED FOR THE DETAILS FROM THE ASSESSEE AND ON PERUSAL OF THE DETAILS OBS ERVED THAT SINCE THE ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 9 TURNOVER OF THE ASSESSEE HAD INCREASED ONLY 10% WHE REAS THE CHEMICAL EXPENSES HAD INCREASED MULTIPLE TIME . THE AO OBSE RVED THAT ASSESSEE HAD NOT GIVEN ANY SATISFACTORY REPLY, THE A.O. DISALLOW ED 10% OF RS. 25,29,331/- I.E. 2,52,933/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. ON FIRST APPEAL FILED BY THE ASSESSEE WITH LEA RNED CIT(A) BEING AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE LD. CIT(A) DELETED ADDITION MADE BY THE A.O. ON THE GROUND THAT THERE WAS NO JUSTIFICATION AND COGENT REASONS GIVEN BY THE AO BACKED WITH EVIDENCES BEFORE MAKING SUCH ADHOC 10% DISALLO WANCE, VIDE APPELLATE ORDER DATED 19-09-2011. AGGRIEVED BY THE APPELLATE ORDER DATED 19-09-2011 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING THE LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR ALMOST LAST TWO YEARS , THE ASSESSEE HAS NOT ENTERED AP PEARANCE WHEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21 -09-2016, 30-03-2017 AND FINALLY ON 10-08-2017. THE LD. DR RELIED ON THE ASSESSMENT ORDER OF THE A. O. AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED AS THE T URNOVER OF THE ASSESSEE HAS INCREASED ONLY 10% , WHEREAS THE CHEMICAL EXPENSE H AD INCREASED IN MULTIPLES. IT IS SUBMITTED THE ASSESSMENT ORDER OF THE A.O. SHOULD BE UPHELD. WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AVAIL ABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAS IN ITS PAPER BOOK FI LED WITH THE TRIBUNAL ENCLOSED COPY OF AUDITED FINANCIAL STATEMENT AND TA X AUDIT REPORT FOR THE FINANCIAL YEAR ENDED 31-03-2006 (PB/PAGE 1-39), WHE REIN COPY OF P&L ACCOUNT IS ALSO FILED ALONG WITH ANNEXURES, IT CAN BE SEEN THAT THE TURNOVER OF ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 10 THE ASSESSEE HAS INCREASED FROM RS. 37.06 CRORES D URING THE FINANCIAL YEAR 2004-05 TO 40.61 CRORES DURING FINANCIAL YEAR 2005 -06 AND THE GROSS PROFIT OF THE ASSESSEE HAS INCREASED TO RS.3.94 CRORES DURING FINANCIAL YEAR 2005-06 FROM RS.3.37 CRORES DURING FINANCIAL YEAR 2004-05. THUS, IT IS OBSERVED THAT THE GP RATIO HAS IMPROVED FROM 9.07% TO 9.70%. TH E CLOSING STOCK OF FINISHED GOODS HAD ALSO INCREASED TO 11.69 CRORES D URING FINANCIAL YEAR ENDING 31-03-2006 FROM RS.8.02 CRORES LAST YEAR. THE CHEMI CAL EXPENSES , NO DOUBT , HAD INCREASED TO RS. 25.29 LACS FOR THE FINANCIAL Y EAR ENDING 31-03-2006 COMPARED TO RS. 4.36 LACS DURING LAST YEAR BUT NOTH ING INCRIMINATING HAS BEEN BROUGHT ON RECORD BY THE AO TO SUGGEST THAT TH ERE HAS BEEN ANY ATTEMPT BY THE ASSESSEE TO CONCEAL INCOME , INFLATE EXPENSE S OR DEFRAUD REVENUE OR MANIPULATE /FALSIFY ITS BOOKS OF ACCOUNT THEREOF. T HE SAID CHEMICAL CHARGES CONSTITUTE INSIGNIFICANT PROPORTION OF THE TURNOVER ACHIEVED BY THE ASSESSEE AND MERE INCREASE OF CHEMICAL EXPENSES TO RS. 25.2 9 LACS IN THE RELEVANT YEAR UNDER CONSIDERATION FROM RS. 4.36 LACS DURING PREC EDING YEAR NOT IN TANDEM WITH UPWARD MOVEMENT OF TURNOVER IS NOT INDICATIVE OF ANY OVERT ATTEMPT BY THE ASSESSEE TO CONCEALS ITS INCOME, INFLATE EXPENS ES OR TO DEFRAUD REVENUE CALLING FOR ADHOC DISALLOWANCE IN THE ABSENCE OF IN CRIMINATING MATERIAL BROUGHT ON RECORD BY THE AO FOR WHICH ONUS WAS ON T HE AO AS THE ASSESSEE DISCHARGED ITS PRIMARY ONUS BY BRINGING ON RECORD T HE RELEVANT MATERIAL. WE HAVE OBSERVED THAT THE A.O. HAS NOT BROUGHT ON RECO RD ANY COGENT INCRIMINATING MATERIAL , REASONS OR JUSTIFICATIONS WHILE MAKING ADHOC DISALLOWANCE OF 10% OF CHEMICAL EXPENSES EXCEPT TAK ING A VIEW THAT TURNOVER OF THE ASSESSEE INCREASED BY 10% WHILE CHEMICAL EXP ENSES INCREASED IN MULTIPLES WHICH IS NOT SUFFICIENT TO SUSTAIN DISALL OWANCE AND FASTEN TAX LIABILITY ON THE ASSESSEE, WHICH ADDITIONS IN OUR C ONSIDERED VIEW WAS RIGHTLY DELETED BY LEARNED CIT(A) VIDE APPELLATE ORDER DATE D 19-09-2011. THUS, UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO D EVIATE FROM THE DECISION TAKEN BY THE LD. CIT(A) VIDE APPELLATE ORDER DATED 19-09-2011 WITH WHICH WE CONCUR AND APPELLATE ORDER OF LEARNED CIT(A) IS HER EBY CONFIRMED. WE, ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 11 THEREFORE, DISMISS THE GROUND RAISED BY THE REVENU E. THUS, REVENUE FAILS ON THIS GOUND. WE ORDER ACCORDINGLY. 7. THE NEXT GROUND IS WITH RESPECT TO THE DISALLOWA NCE OF RS. 4,15,960/- BY THE AO BEING PAID BY THE ASSESSEE TO WORKMEN UND ER THE HEAD EMPLOYEES DEATH. THE A.O. ASKED THE ASSESSEE TO FILE THE DET AILS WHICH THE ASSESSEE FILED BUT , IN THE OPINION OF THE AO THE ASSESSEE HAS FAI LED TO GIVE JUSTIFICATION OF THESE EXPENSES AND ALSO TO ESTABLISH THE BUSINESS E XPEDIENCY OF SUCH EXPENSES AS EMPLOYEES FAMILY GETS COMPENSATION FROM ESIC AND PF ON DEATH OF EMPLOYEE OF THE ASSESSEE, AND ACCORDINGLY THE A. O. DISALLOWED THE ENTIRE EXPENSES OF RS. 4,15,960/- U/S 37(1) OF THE ACT, VI DE ASSESSMENT ORDER DATED 28-11-2008 PASSED U/S 143(3) OF THE 1961 ACT BY THE AO. ON FIRST APPEAL FILED BY THE ASSESSEE WITH LEARNED CIT(A) AGAINST THE ASS ESSMENT ORDER DATED 28- 11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT , THE LD. CIT(A) DELETED ADDITION MADE BY THE A.O. AS THE ASSESSEE HAS SUBMI TTED BEFORE LEARNED CIT(A) THAT ACCIDENT TOOK PLACE IN THE FACTORY OF T HE ASSESSEE WHEREIN ONE EMPLOYEE MR. SHRINIDHI SRINIVAS IYENGAR LOST HIS LI FE FOR WHICH THE ASSESSEE HAD PAID COMPENSATION OF RS. 4,15,960/- UNDER WORKM ANS COMPENSATION ACT WHICH IS A STATUTORY OBLIGATION CAST UPON THE A SSESSEE COMPANY ALLOWABLE U/S 37(1) OF THE ACT. THE DEATH CERTIFICATE OF MR. . SHRINIDHI SRINIVAS IYENGAR WAS ALSO PRODUCED BY THE ASSESSEE BEFORE LEARNED CI T(A). THE LD. CIT(A) OBSERVED THAT THE REASON FOR THE DISALLOWANCE BY TH E AO OF ABOVE AMOUNT WAS ABSOLUTELY BASELESS AND LEARNED CIT(A) DELETED THE DISALLOWANCE MADE BY THE A.O., VIDE APPELLATE ORDER DATED 19-09-2011. AGGRIE VED BY THE APPELLATE ORDER DATED 19-09-2011 PASSED BY THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING THE LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 12 ALMOST LAST TWO YEARS, THE ASSESSEE HAS NOT ENTERED AP PEARANCE WHEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21-09- 2016, 30-03-2017 AND FINALLY ON 10-08-2017. THE LD. DR RELIED ON THE ASSESSMENT ORDER OF THE A. O. AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED. IT IS S UBMITTED THE ASSESSMENT ORDER OF THE A.O. SHOULD BE UPHELD. WE HAVE HEARD LD. DR AND PERUSED THE MATERIAL AVAIL ABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS . 4,15,960/- UNDER THE HEAD EMPLOYEES DEATH WHICH IS CLAIMED AS DEDUCTIO N WHILE COMPUTING BUSINESS INCOME OF THE ASSESSEE. THE SAID AMOUNT W AS PAID BY THE ASSESSEE AS ONE OF THE EMPLOYEES MR. SHRINIDHI SRINIVAS IYEN GAR LOST HIS LIFE IN AN ACCIDENT WHICH TOOK PLACE IN FACTORY DURING THE YEA R , FOR WHICH THE ASSESSEE HAD PAID COMPENSATION OF RS. 4,15,960/.- UNDER WORK MANS COMPENSATION ACT WHICH IS A STATUTORY OBLIGATION CAST UPON THE A SSESSEE COMPANY. THE DEATH CERTIFICATE OF MR. SHRINIDHI SRINIVAS IYENGAR WAS ALSO PRODUCED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND IS ALSO P LACED IN PAPER BOOK FILED WITH THE TRIBUNAL(PAGE 90/PB) . WE HAVE SEEN DOCUME NTS PLACED IN PAPER BOOK/PAGE 86-89 WHEREIN DECLARATION OF SETTLEMENT B Y THE PARENTS OF THE EMPLOYEE MR. SHRINIDHI SRINIVAS IYENGAR WHO DIED IN AN ACCIDENT IN FACTORY ON 08-10-2005 DUE TO SUDDEN BLAST OF COMPRESSOR OF THE MACHINE IS PLACED.THE SAID PAYMENT WAS MADE BY THE ASSESSEE TO FATHER OF THE DECEASED EMPLOYEE VIDE CHEQUE NO. 191270 DATED 28-11-2005 DRAWN ON VI JAYA BANK , OVERSEAS BRANCH, NARIMAN POINT, MUMBAI-400021 FOR RS. 4,15,9 60/- IN SETTLEMENT OF CLAIM UNDER THE WORKMEN COMPENSATION ACT. THE LETTE R TO THE O/O JOINT DIRECTOR, INDUSTRIAL SAFETY AND HEALTH , NAVI MUMBA I IS ALSO PLACED ON RECORD WHEREIN IT IS CONTENDED THAT IT WAS A NEW COMPRESSO R PURCHASED FROM A SUPPLIER IN DELHI WHICH WAS PUT ON OPERATIONS ONLY ON 19-09-2005 WHICH SUDDENLY BLASTED ON 08-10-2005 LEADING TO FATAL ACC IDENT(PAGE 91/PB). THUS, ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 13 IT WAS MADE OUT TO BE AN ACCIDENT CAUSED DUE TO MAT ERIAL DEFECT IN NEW COMPRESSOR. THE ASSESSEE HAS ALSO ENCLOSED EMABALM ING CERTIFICATE FROM JOHN PINTO INT. PVT LTD WHO HANDLED THE DEAD BODY O F THE EMPLOYEE IS ALSO PLACED ON RECORD( PAGE 92/PB) . WE ARE INCLINED TO AGREE WITH THE APPELLATE ORDER OF LEARNED CIT(A) WITH WHOM WE CONCUR AND FIN D NO REASON TO DEVIATE FROM A VIEW TAKEN BY LEARNED CIT(A) DELETING THE AD DITION MADE BY THE AO. THE AO HAS GIVEN A REASONING THAT SINCE EMPLOYEE FA MILY WILL GET COMPENSATION UNDER PF AND ESIC ACTS , HENCE THE CO MPENSATION PAID BY THE ASSESSEE IS NOT AN BUSINESS EXPENSES CALLING FOR DI SALLOWANCE U/S 37(1) OF THE 1961 ACT IS A VIEW WHICH IS TOTALLY UNSUSTAINABLE V IEW IN THE EYES OF LAW AS THIS EXPENSES IN INFACT IS AN EXPENSES WHICH IS INC URRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE WITHIN MANDATE OF PROVISIONS OF SECTION 37(1) OF THE 1961 ACT , BECAUSE FIRSTLY THE COMPENSATION IS PAID TO FAMILY OF ANY EMPLOYEE WHO DIED IN AN ACCIDENT IN F ACTORY PREMISES OCCURRED WHICH OCCURRED DURING CONDUCTING BUSINESS OF THE AS SESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT Y EAR SECONDLY THE LIABILITY HAS ARISEN UNDER THE STATUTE I.E. WORKMEN COMPENSAT ION ACT WHICH THE ASSESSEE IS OBLIGED UNDER LAW TO DISCHARGE, THEREBY FULFILLING MANDATE OF SECTION 37(1) OF THE 1961 ACT FROM WHICH EVER ANGLE IT IS SEEN, AS IT IS A BUSINESS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSES OF BUSINESS. WE AFFIRM WELL REASONED ORDER OF LEARNED CIT(A) AND REFUSED TO TAKE A DIFFERENT VIEW DUE TO REASONS CITED ABOVE. REVENU E FAILS ON THIS GROUND ALSO. WE ORDER ACCORDINGLY. 8. THE NEXT GROUND RELATES TO THE DISALLOWANCE OF T ERMINAL HANDLING CHARGES AND DOCUMENTATION HANDLING CHARGES , AGGREG ATING TO RS. 32,44,766/- U/S 40(A)(IA) OF THE ACT. THE A.O., ON PERUSAL OF THE RECORDS AND SUBMISSIONS MADE BY THE ASSESSEE DURING THE ASSESSM ENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT, OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 31,06,536/- TOWARDS TERMINAL HANDL ING CHARGES AS WELL AN ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 14 AMOUNT OF RS. 1,38,240/- TOWARDS DOCUMENTATION CHAR GES. THE ASSESSEE WAS ASKED TO JUSTIFY AS TO WHY THESE EXPENSES SHOULD NO T BE TREATED AS A WORK CONTRACT IN VIEW OF THE PROVISIONS OF SECTION 194C OF THE ACT AND LIABLE TO DEDUCTION OF INCOME TAX AT SOURCE ON SUCH PAYMENTS, BUT , IN THE OPINION OF THE AO, NO PROPER EXPLANATION AS TO NATURE OF THESE EXPENSES WAS FURNISHED BY THE ASSESSEE AND ALSO THE ASSESSEE FAILED TO FUR NISH PROOF OF INCOME TAX DEDUCTED AT SOURCE AGAINST SUCH PAYMENTS. SINCE THE ASSESSEE FAILED TO SUBMIT THE EXPLANATION/PROOF, THE A.O. DISALLOWED T HE ENTIRE AMOUNT TOTALING RS. 32,44,766/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. ON APPEAL FILED BY THE ASSESSEE WITH THE LEARN ED CIT(A) AGAINST THE ASSESSMENT ORDER DATED 28-11-2008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO N AND IN THE LIGHT OF CBDT CIRCULAR NO. 723 DATED 19.9.1995 DELETED THE ADDITI ON MADE BY THE A.O. BY HOLDING AS UNDER:- GROUND 12 IS AS UNDER: THE ASSESSING OFFICER HAS ERRED IN LAW IN DISALLOWI NG RS. 32,44,766/- OUT OF THC & DOCUMENTATION CHARGES WITH OUT CONSIDERING THAT THESE PAYMENTS WERE MADE TO FOREIG N SHIPPING COMPANIES WHICH ARE SPECIFICALLY EXEMPTED FROM TDS VIDE CIRCULAR 723 DATED 19.09.1995.' 12.1 THE AO HAS DISCUSSED THIS ISSUE AT PARA 13 AND HAS HELD THAT NO PROPER EXPLANATION WAS FURNISHED BY THE ASS ESSEE. 12.2 THE APPELLANT SUBMITTED THAT- 13.1 YOUR APPELLANT HAS INCURRED EXPENSES ON TERMIN AL HANDLING CHARGES (THC) AMOUNTING TO RS. 31,06,536/- AND AN A MOUNT OF RS. 1,38,240/- FOR DOCUMENTATION CHARGES. 13.2 IN RESPONSE TO THE QUERY RAISED BY THE LEARNED AO, IN THE LETTER DATED 22.05.2008, DETAILS OF EXPENSES WERE F URNISHED VIDE LETTER DT. 15.10.2008 SUBMITTED ON BEHALF OF THE AS SESSEE. VIDE ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 15 HIS LETTER DATED 31.10.2008 THE AO SOUGHT DETAILS O F TDS ON THE AMOUNT OF PAYMENT UNDER THE HEAD 'THC CHARGES AND ALSO REASONS AS TO WHY THE AFORESAID PAYMENTS SHOULD NOT BE CONSIDERED AS WORK CONTRACT U/S.194C OF THE ACT. SU BMISSION WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDING S VIDE LETTER DATED 15.10.2008. DETAILS OF EXPENSES UNDER THE HEAD THC CHARGES AND DOCUMENTATION CHARGED WERE FURNISHED. T HE LEARNED AO HAS DISALLOWED THE AMOUNT OF RS. 32,44,766/- U/S .40(A)(IA) OF THE ACT FOR THE REASON THAT NO PROOF OF TDS ON THE PAYMENTS MADE WAS FURNISHED. 13.3 THE PROVISIONS OF SEC. 194C OF THE ACT IN RESP ECT OF PAYMENTS MADE AS TERMINAL HANDLING CHARGES AND FOR DOCUMENTATION CHARGES ARE NOT APPLICABLE IN THIS CA SE SINCE THE PAYMENTS HAVE BEEN MADE TO THE- AGENTS OF FOREIGN S HIPPING COMPANIES. SUCH PAYMENTS TO FOREIGN SHIPPING COMPAN IES OR TO THEIR AGENTS OF TERMINAL HANDLING CHARGES AND FOR D OCUMENTATION CHARGES ARE EXEMPTED FROM TDS PROVISION, VIDE CIRCU LAR NO. 723 DATED 19.09.1995 ISSUED BY THE CBDT. A COPY OF THE SAID CIRCULAR IS ENCLOSED AS ANNEXURE G. IT MAY PLEASE BY NOTED F ROM THE CIRCULAR THAT AGENTS ACT ON BEHALF OF THE NONRESIDE NT SHIP OWNERS AND THEREFORE THEY STEP INTO THE SHOES OF THE PRINC IPAL. THE CIRCULAR BEING SELF EXPLANATORY AND BEING OF BINDIN G NATURE, NO FURTHER ELABORATION IS REQUIRED. SUFFICE IT TO SAY THAT PROVISION SECTION 194C OR 195 IS NOT ATTRACTED IN RESPECT OF PAYMENTS MADE AS THC. 13.4 IN VIEW OF THE EXPRESS CLARIFICATION ISSUED BY CBDT BY THE AFORESAID CIRCULAR THERE IS NOT LIABILITY ON THE PA RT OF YOUR APPELLANT FOR TDS AND HENCE NO DEFAULT IS COMMITTED TO ATTRACT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HEN CE, THE DISALLOWANCE OF RS.32,44,766/- MADE BY THE LEARNED A.O. MAY PLEASE BE DELETED. 12.3 IT IS SEEN THAT THE CIRCULAR NO.723 DATED 19.0 9.1995 OF CBDT AT PARA 4 & 5 STATES AS UNDER: '4. SECTION 194C DEALS WITH WORK CONTRACTS INCLUDIN G CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OT HER THAN RAILWAYS. THIS SECTION APPLIES TO PAYMENTS MADE BY A PERSON REFERRED TO IN CLAUSES (A) TO (J) OF SUB SECTION (1 ) TO ANY 'RESIDENT' (TERMED AS CONTRACTOR). IT IS CLEAR FROM THE SECTIO N THAT THE AREA OF ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 16 OPERATION OF TDS IS CONFINED TO PAYMENTS MADE TO AN Y 'RESIDENT'. ON THE OTHER HAND, SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM SHIPPING BUSINESS OF NO N-RESIDENTS. THUS, THERE IS NO OVERLAPPING IN THE AREAS OF OPERA TION OF THESE SECTIONS. 5. THERE WOULD HOWEVER, BE CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON-RESIDENT SHIP-OWNERS OF C HARTERERS FOR CARRIAGE OF PASSENGERS ETC., SHIPPED AT A PORT IN I NDIA. SINCE, THE AGENT ACTS ON BEHALF OF THE NON-RESIDENTS SHIP-OWNE R OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDING LY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY. CIRCULAR: N .723, DATED 19.09.1995. 12.4 THE APPELLANT HAS MADE PAYMENT TO THE SHIPPING AGENTS WHO RECEIVED PAYMENT ON BEHALF OF NON-RESIDENT SHIP -OWNERS, SECTION 194C & 195 THEREFORE, DO NOT APPLY. CONSEQU ENTLY, THE PROVISION OF SECTION 40(A)(IA) ALSO DO NOT APPLY. G ROUND 12 IS, THEREFORE, ALLOWED. AGGRIEVED BY THE APPELLATE ORDER DATED 19-09-2011 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING THE LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR LAST ALMOST TWO YEARS , THE ASSESSEE HAS NOT ENTERED AP PEARANCE WHEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21 -09-2016, 30-03-2017 AND FINALLY ON 10-08-2017. THE LD. D.R. RELIED ON THE ASSESSMENT ORDER OF THE A.O. AND SUBMITTED THAT THE ASSESSEE HAS FILED PAPER BOOK WHEREIN THESE DET AILS HAVE BEEN GIVEN VIDE PAGE 99 TO 110 WHICH NEED VERIFICATION / EXAMINATIO N BY THE AO AND HENCE THE MATTER MAY BE SET ASIDE / RESTORED TO THE FILE OF THE AO AS THESE DETAILS WERE NOT FURNISHED BY THE ASSESSEE BEFORE THE AO. ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 17 WE HAVE HEARD LD. D.R. AND PERUSED THE MATERIAL AVA ILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF AUTHORITIES BEL OW AND ALSO THE PAPER BOOK FILED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE H AD MADE PAYMENT TO 22 PARTIES WITH RESPECT TO THE TERMINAL HANDLING CHARG ES AND DOCUMENTATION CHARGES AGGREGATING TO RS. 32,44,766/- AS IS EMERGI NG FROM DETAILS PLACED IN PAPER BOOK/PAGE 100-102 .WE HAVE PERUSED THESE DETA ILS CAREFULLY . WE HAVE OBSERVED THAT WITH RESPECT TO THESE 22 PARTIES , EVIDENCES W.R.T. ONLY SIX PARTIES HAVE BEEN ENCLOSED IN THE PAPER BOOK FILED WITH THE TRIBUNAL (PAGE 104-110/PB) TO CLAIM THAT THESE PAYOUTS WERE TO NON RESIDENT SHIPPING COMPANIES AND/OR THEIR AGENTS WHICH ARE COVERED BY PROVISIONS OF SECTION 172 OF THE 1961 ACT AND NO DISALLOWANCE IS CALLED F OR U/S 40(A)(IA) OF THE 1961 ACT , AND THIS CLAIM OF THE ASSESSEE REQUIRES PROPE R VERIFICATION AND EXAMINATION BOTH ON FACTS AND ON LAW , BY THE AO. THUS, WE DEEM IT FIT TO SET ASIDE AND RESTORE THE MATTER BACK TO THE FILE OF TH E A.O. FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERIT IN ACCORDANCE W ITH LAW. THE ASSESSEE IS DIRECTED TO APPEAR BEFORE THE A.O. AND PRODUCE ALL COGENT AND RELEVANT EVIDENCES TO JUSTIFY THE CLAIM THAT THESE AMOUNTS A RE NOT COVERED BY 194C & 195 OF THE ACT AND THUS, NO DISALLOWANCE IS CALLED FOR BY FILING DETAILS W.R.T. ALL TWENTY TWO PARTIES WHICH SHALL BE EVALUATED/EXAMINE D BY THE AO ON MERITS BOTH ON FACTS AND IN LAW. THE AO SHALL ADMIT ALL EV IDENCES / EXPLANATIONS SUBMITTED BY THE ASSESSEE IN THE INTEREST OF JUSTIC E AND SHALL ADJUDICATED THE SAME ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN AC CORDANCE WITH LAW. THIS GROUND RAISED BY REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 9. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF INTE REST EXPENSES OF RS. 3.0 LACS BY THE AO BY TREATING THE SAME TO BE CAPITAL IN NATURE. FROM THE ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 18 RECORDS AND SUBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT, THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAD SHOWN ADDITI ONS TO FIXED ASSETS AMOUNTING TO RS.54,50,219/- AGAINST PLANT & MACHINE RY IN ITS SCHEDULE OF FIXED ASSETS. THE A.O. ASKED FOR THE DETAILS, HOWEV ER, THE ASSESSEE FAILED TO FURNISH THE DAY TO DAY DETAILS AS ASKED FOR. EVEN T HE DATE OF THE ASSETS BEING PUT TO USE WAS NOT MENTIONED BY THE AUDITORS IN THE IR TAX-AUDIT REPORT AND FROM THE DETAILS OF ADDITIONS FURNISHED BY THE ASSE SSEE , IT WAS OBSERVED BY THE AO THAT THAT THE ASSESSEE HAD NOT CAPITALISED T HE INTEREST PAID ON TERM LOAN BEFORE THE PLANT & MACHINERY WAS PUT TO USE. S INCE THE DATE-WISE DETAILS AND THE DATE WHEN SUCH PLANT & MACHINERY WAS PUT TO USE WAS NOT GIVEN BY THE ASSESEE, THE A.O. COULD NOT COMPUTE THE CORRECT INTEREST ON TERM LOANS WHICH WAS INCURRED BY THE ASSESSEE BEFORE SUCH FIXE D ASSETS WERE PUT TO USE WHICH NEEDED TO BE CAPITALIZED . THE A.O. ACCORDING LY ESTIMATED RS. 3 LACS INTEREST ON CONCERNED TERM LOAN INCURRED BY THE ASS ESSEE ON TERM LOANS BEFORE SUCH PLANT & MACHINERY WAS PUT TO USE FOR BU SINESS. HENCE, OUT OF RS. 92,91,068/- CLAIMED AS INTEREST EXPENSES FOR THE YE AR, THE A.O. DISALLOWED RS. 3 LACS TREATING IT AS INTEREST PAID AGAINST SUCH P LANT & MACHINERY BEFORE IT WAS PUT TO USE, VIDE ASSESSMENT ORDER DATED 28-11-2 008 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. ON FIRST APPEAL FILED B Y THE ASSESSEE WITH LEARNED CIT(A) AGAINST THE ASSESSMENT ORDER DATED 28-11-200 8 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE LD. CIT(A) GAVE RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 13.2 THE APPELLANT SUBMITTED THAT IT HAS CAPITALIZ ED RS. 59,739/- OF INTEREST ONLY AND THE INTEREST EXPENSES OF RS. 92,91,068/- IS REVENUE EXPENSE. THE APPELLANT ALSO FURNISHED DATE OF INSTALLATION OF MACHINERY AND HOW IT HAS CA PITALIZED INTEREST OF RS. 59,739/-. UNDER THE CIRCUMSTANCES, ESTIMATED DISALLOWANCE OF RS.3,00,000/- IS NOT WARRANTED. GRO UND 13 IS, THEREFORE, ALLOWED. ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 19 AGGRIEVED BY THE APPELLATE ORDER DATED 19-09-2011 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING BEFORE THE TRIBUNAL , NONE A PPEARED ON BEHALF OF THE ASSESSEE, THEREFORE, WE PROCEED TO DISPOSE OF T HIS APPEAL AFTER HEARING THE LD. D.R. . WE HAVE OBSERVED THAT SINCE 02 ND SEPTEMBER 2015 I.E. FOR LAST ALMOST TWO YEARS, THE ASSESSEE HAS NOT ENTERED APP EARANCE WHEN THE APPEAL WAS FIXED FOR HEARING ON 02-09-2015, 17-03-2016, 21-09- 2016, 30-03-2017 AND FINALLY ON 10-08-2017. THE LD. D.R. SUPPORTED THE ASSESSMENT ORDER OF THE A.O.. WE HAVE HEARD LD. D.R. AND PERUSED THE MATERIAL ON RECORD. THE ASSESEE SUBMITTED THE DETAIL BEFORE THE LD. CIT(A) AS TO TH E DATES ON WHICH THE FIXED ASSETS WERE PUT TO USE AND THE INTEREST CAPITALIZED BY THE ASSESSEE. WE HAVE OBSERVED THAT DETAILS WERE NOT FURNISHED BEFORE THE AO AND THESE DETAILS REQUIRE VERIFICATION BY THE A.O. AS THE SAID DETAIL S WERE NOT FILED BEFORE THE A.O. AS IS EMERGING FROM RECORDS. THE LD. CIT(A) HA S NOT CALLED FOR ANY REMAND REPORT FROM THE AO NOR THESE DETAILS WERE FORWARDED BY LEARNED CIT(A) TO THE AO FOR VERIFICATION/EXAMINATION, AS IS CONTEMPLATED BY RULE 46A OF THE INCOME-TAX RULES, 1962. IN OUR CONSIDERED VIEW, TH IS MATTER IS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE-NOVO DE TERMINATION OF THE ISSUE ON MERITS AFTER VERIFICATION / EXAMINATION OF THE DETA ILS FILED BY THE ASSESSEE . NEEDLESS TO SAY PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WI TH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THIS GROUND RAISED BY REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 10. THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS BE ING CO NO. 249/MUM/2012 , RAISING THE GROUNDS OF CROSS OBJECTI ONS TO SUPPORT THE RELIEF ITA 8438/MUM/2011 & C.O. NO. 249/MUM/2012 20 GRANTED BY LEARNED CIT(A) ON ALL THE ISSUES AGITATE D BY THE REVENUE IN ITS APPEAL BEFORE THE TRIBUNAL. 11. SINCE WE HAVE DECIDED ALL THE ISSUES RAISED BY THE REVENUE IN ITS APPEAL FILED WITH THE TRIBUNAL IN THE PRECEDING PAR AS OF THIS ORDER , THE C.O. FILED BY THE ASSESSEE HAS ONLY RAISED THE ISSUES AR ISING OUT OF APPEAL FILED BY THE REVENUE, HENCE , ALL THE ISSUES RAISED IN THE C O ARE ALSO ACCORDINGLY DISPOSED OFF . 12. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 8438/MUM/2011 FOR A.Y. 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURP OSE AND THE C.O. 249/MUM/2012 FOR A.Y. 2006-07 IS ACCORDINGLY DISPOS ED OFF. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST 2017. # $% &' 18.08.2017 ( ) SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 18.08.2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI