DCIT, CIRCLE-3(2), NEW DELHI V. ASIAN CONSOLIDATED INDS.LTD), REWARI

ITA 6218/DEL/2017

AI Insights

The case involves appeals by the Revenue against M/s Asian Consolidated Industries Ltd. concerning the assessments for the years 1993-94, 1994-95, and 1995-96. The primary issues revolved around the rejection of books of accounts, disallowances related to deductions under sections 80HH and 80I of the Income-tax Act, and various additions made by the Assessing Officer which were later contested. The Tribunal noted the complex history of mergers and liquidations involving the assessee company and acknowledged the procedural lapses during the initial assessments. The Tribunal's decision emphasized the need for a fair assessment process, granting the assessee adequate opportunity to present its case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772375 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 1994-1995
• Other Referred Cases: COMMISSIONER OF INCOME-TAX, VISAKHAPATNAM VERSUS S. VIJAYA KUMAR
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONIKA SINGH
• Assessee Lawyers: VED JAIN; AYUSH GARG
• Keywords: Set aside; Business income; Opportunity of being heard; Proportionate interest; Depreciation; Unexplained investment; Rejection of books of accounts; Income from undisclosed sources; Rule of consistency; Liquidation; Bogus
• Section: 32; 44AD; 145

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘F’’ : NEW DELHI) BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI KRINWANT SAHAY, ACCOUTANT MEMBER ITA No. 4514/Del/2018 (Asstt. Year : 1993-94) ITA No. 6218/Del/2017 (Asstt. Year 1994-95) AND ITA No. 7501/Del/2018 (Asstt. Year 1995-96) DCIT, CIRCLE-3(2), NEW DELHI vs. M/S ASIAN CONSOLIDATED INDUSTRIES LTD., 96TH MILE STONE, DELHI-JAIPUR HIGHWAY, VILLAGE-BAWAL, DISTT.- REWARI, HARYANA (PAN: AAACA5887A) (Appellant) (Respondent) Assessee by : Sh. Ved Jain, Adv. & Sh. Ayush Garg, CA Department by : Ms. Monika Singh, CIT-DR Date of Hearing 20.08.2025 Date of Pronouncement 27.08.2025 ORDER PER KRINWANT SAHAY, AM: These appeals have been filed by the Revenue relating to assessment years 1993-94, 1994-95 and 1995-96 in the case of the same assessee viz. M/s Asian Consolidated Industries Ltd. Since the issues involved in these Printed from counselvise.com 2 appeals are inter-connected, hence, the appeals were heard together and are being consolidated and disposed of by this common order for the sake of convenience., by dealing with first with ITA No. 4514/Del/2018 (AY 1993-94). 2. Brief facts of the case are that the assessee company M/s. Asia Consolidated Industries Ltd. is a limited company incorporated under the Companies Act 1956 on 8.01.1995 by the name of M/s. Asian Can Ltd. which was subsequently changed to M/s. Asian Consolidated Industries Ltd. The company was engaged in the business of manufacturing of Flexible Packaging, Laminate, Open Top Sanitary Cans and General line metal Cans. By virtue of order of Hon'ble Punjab & Haryana High Court dated 06.01.1994, Asian Closures Limited got merged with the assessee company w.e.f. 20.03.1992. Further by virtue of another order of Hon'ble Punjab & Haryana High Court dated 28.07.1995, M/s. Trans Asia Packaging Ltd. was also merged with the assessee company w.e.f. 01.04.1992. 3. The original assessment of all three companies were made independently. In the assessment order passed by the Assessing Officer, certain additions and disallowances were made against which, each of these companies filed appeal before CIT(A). 4. In the meantime, a liquidation petition was filed by Gujarat State Financial Services on 16.10.1997 and an order was passed by the Hon'ble Punjab & Haryana High Court for winding up of the company and appointed a Liquidator w.e.f. 07.01.1999. During the liquidation, CIT(A) took up all the abovesaid appeals and in the absence of any proper representation from the liquidator all the appeals were dismissed vide order dated 29.03.2001. Thereafter, the Revival Petition was filed before Hon'ble Punjab & Haryana High Court for reviving the company. Hon'ble Punjab & Haryana High Court allowed the revival of the company and vide order dated 08.03.2013, allowed Printed from counselvise.com 3 liberty to the ex-management of the assessee company to challenge/contest the order passed during the pre-post liquidation period. Accordingly, the assessee company filed appeals before ITAT. 5. The ITAT vide its common order dated 19.06.2015 allowed the appeal of the assessee setting aside the assessment order passed by the AO with a direction to make assessment available giving out an adequate opportunity to the assessee. The relevant para of the ITAT’s order reads as under:- \"We have considered the submission of both the parties and carefully gone through the material available on the record. In the present case, it appears that the department passed the ex-parte order during the period of liquidation and Ld. CIT-1, Delhi while deciding the petition of the assessee and section 264 of the Act for the assessment year 1996-97 to 2001-2002 vide separate orders each dated 11.03.2015 set aside the issues to the file of the AO for making assessment de novo after giving reasonable opportunities of being heard to the assessee. We, therefore, considering the totality of the facts deem it appropriate to remand all the cases under consideration to the file of the AO to be decided expeditiously afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. We also direct the assessee to cooperate and not seek undue or unwarranted adjournments.\" 6. Consequent to the Order of ITAT, the AO took up the assessment of the company. Since all these three companies stood merged in the year under consideration, the assessment of all the three companies were taken up by the AO in the name of M/s. Asia Consolidated Industries Ltd. The AO has passed the consolidated order dated 30.12.2016 which is subject matter of appeal. 7. In this assessment order, the AO has just repeated the original assessment which was made earlier as is evident from the assessment order itself. The AO after discussing the brief history and had passed the original order which the earlier AO has passed in the first round. Printed from counselvise.com 4 8. Aggrieved by the order of the AO, the assessee filed appeal before CIT(A). The CIT(A) vide order dated 26.12.2017 had decided the appeal and has deleted the various additions and disallowances made by the AO. 9. Now aggrieved by the order of the CIT(A), Revenue is in appeal in all the three assessment years. 9.1 During the proceedings before us, Ld. DR vehemently argued against the order passed by the CIT(A) deleting additions made by the AO in the assessment order. The ld. DR has also filed the Written Submissions on each ground in respect of each assessment year. In the Written Submissions the Revenue has mostly reiterated the facts brought on record by the AO and the Ld. DR also argued on legal ground in favour of the Revenue. 10. In this assessment year, the Revenue has raised the following Grounds of Appeal. 1. The Ld. CIT(A) has erred in law and on facts in deleting the various additions and disallowances made by AO on different counts particularly on accounts of bogus sales/purchases, unexplained investments in purchases and disallowance out of expenses without appreciating the discrepancies detected on audit of the accounts u/s142(2A) by special auditor and the facts brought on record by AO. 2. On the facts and in the circumstances of the case, Ld. CIT(A) is legally not correct in holding rejection of books of accounts u/s145 by AO as not justified rather Ld. CIT(A) ought to have confirmed the rejection of books of accounts u/s 145(3) and should have estimated the profits of the business by applying profit rate being shown by the assesses in the similar line of business or as provided u/s44AD of the Income-tax Act, 1961. 3. The Ld. CIT(A) has erred on facts and in law in allowing the claim of deduction u/s 80HH and 801 of the Income-tax Act, 1961 amounting to Rs.2,17,38,272/- in absence of books of accounts and other evidences to justify that the income was derived from eligible business which is statutory requirement for claim of deduction u/s 80HH and 80l of the Income-tax Act, 1961. Printed from counselvise.com 5 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds) of appeal at any time before or during the hearing of this appeal. 11. On going through the above grounds, it is evident that the Revenue has filed consolidated Grounds of Appeal instead of challenging each of the addition and disallowances deleted by the CIT(A). The AO has passed assessment order making addition and disallowances on each of the issues and the CIT(A) has dealt with each of the issues. 12. The first two Grounds raised by the Revenue are regarding rejection of books of account and various additions and disallowances made by the AO which has been deleted by the CIT(A). 12.1 We have considered the arguments of the Ld. Counsel for the assessee and his written submissions. We have also considered the findings given by the AO in the respective assessment orders and Ld. CIT(A)’s findings in his respective appellate orders. We have also gone through the Written Submissions filed by the Revenue during the proceedings before us and after taking into consideration thereof, we are of the considered view that the appeals filed by the Revenue in all the three years against the respective orders of the Ld. CIT(A) are merely reiteration of the facts already brought on record by the AO. 13. As per the ground no. 1 and 2 raised by the Revenue, the main contention is rejection of the books of account and consequent applying presumptive rate of taxation u/s 44AD of the Act. In this regard, it is noted that AO has rejected the books of account on the basis of allegation of various discrepancies which has led to various additions and disallowance The AO itself has not estimated the profit after rejecting the books of account. The AO has made various additions and disallowances itself as is evident from the assessment order. Thus, the contention of the Revenue that CIT(A) should have applied a presumptive Printed from counselvise.com 6 rate of tax under section 44AD is not correct. Further section 44AD itself was introduced in the Income Tax Act by the Finance Act, 1994 w.e.f. 01.04.1994. This section was appliable in respect of civil contractor and not to any other business. Accordingly, the contention of the Revenue that CIT(A) should have applied section 44AD of the Act is otherwise not legally tenable. Further the AO after rejecting the books of accounts has made individual disallowances on the basis of findings recorded by him. Thus it is the findings on the basis of which each of the addition or disallowances have been made are to be considered even after rejection of the books of accounts. Considering the same, the CIT(A) has adjudicated independently each of the addition / disallowance taking into consideration the observations of the AO in the assessment order and the explanation, evidences submitted by the Assessee and material available on record. Thus, the contention of the Revenue that after rejection of books of accounts the CIT(A) should have applied presumptive rate by invoking provisions of section 44AD is not justified. Accordingly both the grounds no 1 and 2 of the revenue are dismissed. 14. However on going through Ground no. 1 raised by the Revenue, it is noted that the Revenue has referred and challenged deletion of various additions and disallowances made by AO after rejection of books of accounts. 15. For each of these additions and disallowances, the Assessee has submitted its explanation and evidences in support thereof. The CIT(A) has gone into each of the issue, examined the facts of the case with the material available and thereafter has decided the issue. 16. The CIT(A) after examination has given a very detailed and reasoned finding in respect of each of the additions/disallowances. It is abundant clear that the CIT(A) has thoroughly examined each issue by analyzing the specific facts and available material and consequently, the CIT(A) has deleted various Printed from counselvise.com 7 additions and disallowances. It is germane to mention here that where the CIT(A) has noticed that evidences are not sufficient or the explanation of the Assessee could not be verified, he has not accepted the contention of the Assessee and has confirmed the addition/ disallowance made by the AO. It is only where CIT(A) on the basis of explanation and evidences available on record, the addition/ disallowance was unsustainable, the CIT(A) has deleted the same. The Revenue has not been able to point out any error or discrepancy in the reasoning given by the CIT(A) for deleting the addition/disallowance. As against this, the assessee has submitted a very precise explanation supported by the relevant evidences in respect of each of the issue. After having perused the facts and the material on record and after going through the order of the CIT(A), we see no reason to interfere with the order of CIT(A). The CIT(A) has discussed and analyzed each and every issue raised by the AO in the assessment order and after examination of the facts and documents on record, the CIT(A) has decided the issue. In the absence of any contrary facts being brought on record by the Revenue, the order of the CIT(A) is upheld and Grounds no 1 and 2 are dismissed on merit as well. Ground No. 3: Regarding deduction under section 80HH and 80l of the Act. 17. Ground No 3 is regarding deduction under section 80HH and 80-1 of the Act. The AO has disallowed the claim on the ground that it is not possible to verify the claim of the appellant under section 80HH and 80l of the Act. The AO has simply relied upon the original assessment order which stood set asided by the ITAT. 18. On this issue we note that the assessee has submitted detailed explanation regarding its claim of deduction under section 80HH and 80l of the Act. The appellant company was incorporated on 18.01.1985 under the Companies Act as Printed from counselvise.com 8 M/s. Asian Can Ltd. which was subsequently changed to M/s. Asian Consolidated Industries Ltd. w.e.f. 16.10.1992. The company was engaged in the business of manufacturing of Flexible Packaging, Laminate, Open Top Sanitary Cans and General line metal Cans, at its office situated at 35th Mile, Delhi-Jaipur Highway, Village Chirhera, Tehsil Bawal, Dist. Rewari. The appellant being an industrial undertaking supported its commercial production since 19.08.1988 which was established in the backward area and therefore entitled to the benefit of section 80HH and 80l of the Act. In order to substantiate its claim, assessee has filed all the relevant documents. The appellant had duly furnished evidences to substantiate that the assessee is situated in a backward area, had employed prescribed labour force, certificate by the auditor under rule 18BBB and 18B, licence granted for manufacturing by the industries department, evidences for sales tax exemptions with respect to the claim of deduction u/s 80-HH and 80-l of the Act. The CIT(A) has examined the issue threadbare and thereafter has allowed the deduction. The Revenue couldn't controvert the findings of CIT(A). 19. It is germane to mention here that in assessee own case for 1996-97, this claim of deduction under section 80HH and 80l was also allowed by CIT(A) vide order dated 20.03.2017. The Revenue has come in appeal before the ITAT against the order of the CIT(A). The order passed by CIT(A) was upheld by the ITAT in ITA No. 3665/Del/2017 vide order dated 25.02.2020, for which both the sides have agreed. 20. In view of the above facts, we hold that the claim of deduction under section 80HH and 80I of the Act has rightly been allowed by CIT(A) and accordingly we affirm the same by dismissing the ground. 21. In the result, the Revenue’s appeal No. 451/del/2018 (AY 1993-94 stands dismissed. Printed from counselvise.com 9 ITA No. 6218/Del/2018 for AY 1994-95 22. In this appeal, the Revenue has raised the following Grounds of Appeal. 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in accepting the books of account of the assessee company rejected by the AO u/s 145 of the Income-tax Act, 1961 without appreciating the facts brought on records by AO particularly that the assessee failed to provide evidences/tangible proof for the transactions done 2. The Ld. CIT(A) has erred in law and on facts in deleting the deductions u/s 80HH and 801 of the Income-tax Act, 1961 amounting to Rs. 1,78,25,974/- and Rs.2,22,82,467/-respectively without going into the merits of the case and appreciating the facts brought by the AO. 3. The Ld. CIT(A) has erred in law and on facts in deleting the income declared at Rs. 3,97,27,431/- in the P & L account of assessee to be as income from undisclosed sources as made by the AO in the assessment order, without examining the facts brought by the AO on record that there was no substantial/relevant document to prove the veracity of the transactions. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in accepting the books of account of M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd), rejected by the AO u/s 145 of the Income-tax Act, 1961 without appreciating the facts brought on records by AO particularly that the assessee failed to provide evidences/tangible proof for the manufacturing of cans or any component. 5. The Ld. CIT(A) has erred in law and on facts in deleting the profit declared by M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd) of Rs. 14,36,833/-, made by AO as income from undisclosed sources by rejecting the books of accounts of the assessee. 6. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.27,04,001/- made by the AO in M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd) on account of manufacturing, in want of any evidence. Printed from counselvise.com 10 7. The Ld. CIT(A) has erred in law and on facts in restricting the disallowance of administrative and selling expenses to Rs.3,73,497/- instead of Rs.32,34,967/-disallowed by the Assessing Officer initially in M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd). 8. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 10,75,500/- made on account of preliminary and public expenses in accordance to section 35D(1) of Income-tax Act, 1961 in M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd). 9. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 3,34,07,571/- made on account of depreciation on kegs restricted by the AO at 25% in the assessment order treating it as one block under Plant & Machinery in M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd). 10. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.41,05,522/-as unexplained investment made in Plant & Machinery by the AO in M/s Asian Closures Ltd (amalgamated with Asian Consolidated Industries Ltd). 11. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in accepting the books of account of M/s Trans Asia Packaging Ltd (amalgamated with Asian Consolidated Industries Ltd), rejected by the AO u/s 145 of the Income-tax Act, 1961 without appreciating the facts brought on records by AO particularly that the assessee failed to provide evidences/tangible proof for the transactions done. 12. The Ld. CIT(A) has erred in law and on facts in deleting the loss of Rs. 1,26,51, 1421-claimed by M/s Trans Asia Packaging Ltd (amalgamated with Asian Consolidated Industries Ltd) in its P & L account without appreciating the facts brought on records by AO that the books of accounts were rejected 13. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.5,20,500/-of printing and job work income, held by the AO as income from undisclosed sources despite the fact that AO has rejected the books of account of assessee in M/s Trans Asia Packaging Ltd (amalgamated with Asian Consolidated Industries Ltd). Printed from counselvise.com 11 14. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds) of appeal at any time before or during the hearing of this appeal. 23. Ground No. 1, 4 and 11 are the three separate grounds relating to the rejection of books of accounts in the three companies respectively. Since the facts are identical to the issue raised by the Revenue in Ground 1 and 2 of ITA No. 4514/Del/2018 for AY 1993-94, as aforesaid, whereby we have upheld the order of the CIT(A) on the same ground, accordingly, following the rule of consistency, these grounds are also dismissed as such. 24. In Grounds 3, 5, 12 and 13, the AO has added income from undisclosed sources, or disallowed the loss, in the P&L accounts of the companies solely on the basis that the books of account were rejected. Since we have concluded that the books of account were wrongly rejected, the additions of income and disallowance of loss made by the AO cannot be sustained. These grounds are therefore dismissed. 25. Ground No. 2 is regarding disallowance under section 80HH and 80l of the Act, which is similar to the Ground No. 3 in ITA No. 4514/Del/2018 for AY 1993-94, as aforesaid. We have already given a detailed reasoning for upholding the order of the CIT(A) in allowing the deduction under section 80HH and 80l of the Act. For the same reasoning we uphold the order of CIT(A) and this ground of the Revenue is dismissed. 26. Ground No. 6 relating to the Disallowance of manufacturing expenses of Rs.27,04,001/-by alleging that the assessee had failed to produce necessary evidences to substantiate the claim for such expenses. It is relevant to note here that the assessee is engaged in the business of manufacturing of tin container components and kegs etc. The assessee had duly submitted the complete break up of manufacturing expenses incurred by the assessee which details are also being reproduced hereunder: Printed from counselvise.com 12 Manufacturing Expenses Amount (in Rs.) Direct Wages 4,10,920 Consumable stores 9,38,325 Machinery Maintenance 4,25,660 Power, fuel and water charges 3,90,031 Labour charges 1,34,800 Cartage 1,59,595 G.W.R 94,670 Job Work 1,50,000 Total 27,04,001 Further, the details with respect to raw material consumed, purchases, work in progress and finished goods has also been given as is evident from reply dated 02.08.2016 filed before AO. Thus, the allegation of the AO that assessee has not furnished the documents is itself flawed and in absolute ignorance of the documents placed on record by the assessee. Moreover, the depreciation on machinery has also been allowed by the AO Considering the above situation, the CIT(A) has deleted the disallowance made by the AO by holding that- \"without incurring manufacturing expenses, manufacturing is not possible. It is not the case of the Assessing Officer that some of the expenditure claimed under the head manufacturing has been claimed at an inflated figure. No such evidence has been brought on record. In view of the above discussion, the claim of the appellant towards manufacturing expenses is found to be plausible and accordingly disallowance of manufacturing expenses of Rs.27,04,001/- is deleted.\" 27. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is also dismissed. Printed from counselvise.com 13 28. Ground No. 7 relating to disallowance of Administrative and selling expenses of Rs.33,61,473/- alleging that the assessee has not produced the details of such evidences. However, the assessee vide reply dated 05.03.1997 had submitted details of the expenditure incurred by it. It is no doubt that all such expenses such as salary, telephone and telex charges, audit fees, conveyance and staff welfare, electricity charges, bank charges and commission, insurance etc. are all incidental to the business of the assessee. Considering the above situation, the CIT(A) has deleted the disallowance made by the AO that: \"Further, it is a fact that the appellant is engaged in the manufacturing activity for components of the tin container and had also manufactured kegs during the period under consideration. For the regular business activity, certain expenditure with respect to administration, selling and distribution ought to have been incurred by the appellant.” 29. Considering the factual matrix of the case, contentions of the assessee and observations of the Assessing Officer, I am of the considered view that disallowance of above expenditure at Rs.32,34,967/- is at a higher side and is ordered to be restricted to 1/10th i.e. Rs. 3,73,497/- of the total expenditure claimed of Rs.37,34,970/-. As a result, the appellant gets a relief of Rs.33,61,473/-. 30. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 31. Ground No. 8 relating to Disallowance of Preliminary and Public Expenses of Rs. 10,75,500/-. CIT(A) has restricted the addition made by AO of Rs. 10,75,500/- to Rs. 9,67,950 by allowing 1/10th of such expenditure in accordance with the provisions of Section 35D(1) of the Act, which are also reproduced hereunder: “Amortisation of certain preliminary expenses. Printed from counselvise.com 14 35D. (1) Where an assessee, being an Indian company or a person (other than a company who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),- (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation\" 32. It is evident from the extract of the Section 35D(1), that the claim for preliminary expenses is allowed over a period of 10 years. Therefore, CIT(A) has rightly allowed 1/10th of the expenditure in the relevant previous year, and consequently the ground of revenue is dismissed. 33. Ground 9 relating to the Depreciation on kegs restricted to 25% by the AO in spite of 100% claimed by the assessee of Rs. 3,34,07,571/-. During the year under consideration, the assessee has manufactured 9114 kegs (used for storage of Drought Beer) costing Rs.4,500/- each and had leased them out to M/s Rajasthan Breweries Ltd. On account of such kegs, depreciation at the rate of 100% has been claimed by the assesssee in accordance with the first proviso to Section 32(1)(ii) of the Act. which reads as under: \"Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession.\" 34. Whereas the AO has allowed the depreciation at the rate of 25% on such kegs considering all the kegs manufactured as one unit, the assessee has considered each keg as an independent unit or drum in which beer is stored and Printed from counselvise.com 15 accordingly claimed 100% depreciation thereon. Undisputedly the value of each keg is below Rs.5000/-. The assessee placed reliance on the judgement of ANDHRA PRADESH HIGH COURT in the case of COMMISSIONER OF INCOME-TAX, VISAKHAPATNAM VERSUS S. VIJAYA KUMAR, 2015 (6) TMI 769, Dated: - 5-6-2015, wherein it has been held that once it is established that the assets do not lose their individual identity and can be dis- assembled after each use and reused again, in such circumstances, each asset is to be taken individually and independent of each other and accordingly depreciation at the rate of 100% is allowable. Thus, as is evident from the facts of the case, each keg is an independent unit/cask/drum in which beer is stored. Each keg has its own separate identity independent of each other and can be dis- assembled after each use and reused again as such in combination with same or different units thereof. The kegs are not an integral part of any other asset. CIT(A) has therefore deleted the disallowance of 75% of the depreciation made by the AO. The CIT(A), while deleting the disallowance has held at Page 15 of the CIT(A) Order that: \"I have considered the contentions of the appellant and the basis on which disallowance of depreciation has been made by the Assessing Officer. The assessing officer has considered all the kegs manufactured as one unit and allowed depreciation at the rate of 25% only. Whereas the fact of the matter is that each keg is an independent unit/cask or drum in which beer is stored. These kegs/casks cannot be considered as a plant in a collective manner and each of the keg can be used separately and individually. As such, considering 9114 kegs as a single plant is contrary to the usage of the same and against the provisions of the Act. Further, the value of each keg is claimed to be below Rs. 5000/- which is not controverted by the Assessing Officer. In view of the nature of the item i.e. kegs, I am of the view that allowance or depreciation on it would be governed by the first proviso to Section 32 of the Act. As such, the appellant is entitled for 100% depreciation on the kegs manufactured during the year. AO is therefore, directed to allow depreciation @ 100% on the kegs.\" Printed from counselvise.com 16 35. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 36. Ground No. 10 relating to the Unexplained investment in Plant & Machinery of Rs.41,05,522/-. During the year under consideration, the assessee has purchased machinery of Rs.41,05,522/-. The breakup of the purchase price of machine is as given below: Payment against machine Rs. Rs.17,66,585/- Custom Duty Paid Rs. 19,95,914/- Clearing Agent Charges Rs. 3,32,023/- Freight & Cartage Rs.11,000/- Total Rs. 41,05,522/- 37. The assessee has duly furnished the bank statement evidencing payment made to the vendor against purchase of machinery of Rs. 17,66,585/- as is evident from PB Pg. 138, Invoice evidencing the clearing agent charges of Rs. 3,32,023/- placed at PB pg. 139, other documents related to import of the machinery at Bombay Port on 03.09.1993 and August 1993, bill of exchange, etc. were filed along with reply dated 13.03.1997 filed before AO A copy of such reply is placed at PB Pg. 134. Moreover, the AO has allowed depreciation on such machinery which itself proves that the purchase of such machinery is genuine. Considering the above situation, the CIT(A) has deleted the disallowance made by the AO by holding at Page 16 of the CIT(A) Order that: \"In view of the above facts, it is held that machinery was installed during the year and the payments i.e. custom duties etc. were paid through bank and in this regard, appellant has filed copy of bill of exchange. Hence, the addition of Rs.41,05,522/-made on account of plant and machinery was not justified and the same is deleted.\" Printed from counselvise.com 17 38. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 39. In the result, the Revenue ITA No. 6218/Del/2018 for AY 1994-95 stands dismissed. ITA No. 7501/Del/2018 for AY 1995-96 40. In this appeal, the Revenue has raised the following Grounds of Appeal. 1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in accepting the books of accounts of the assessee which had been rejected by the AO u/s 145 of the IT Act on the ground of non- production of supporting vouchers/documents which formed the basis of such books of accounts. 2. Whether on the facts and in the circumstances of the case, Ld. CIT (A) has erred in accepting the books of accounts of the assessee despite the fact that the assessee has failed to co-operate during assessment proceedings and comply with the directions of the Hon'ble ITAT given in a common order dated 19-06-2015 in ITA Nos. 4010 to 4023/Del/2013. 3. Whether on the facts and in the circumstances of the case, Ld. CIT (A) has erred in allowing deduction u/s 80HH of the IT Act amounting to Rs. 1,08,85,284/- which the AO had disallowed for want of supporting papers/documents. 4. Whether on the facts and in the circumstances of the case, Ld. CIT (A) has erred in allowing deduction u/s 80l of the IT Act amounting to Rs. 1,36,06,604/- which the AO had disallowed for want of supporting papers/documents. 5. Whether on the facts and in the circumstances of the case, Ld. CIT (A) has erred in deleting the addition of Rs. 1,61,97,155/- on the account of Administrative, Selling and Distribution expenses. 6. Whether on the fact and in the circumstances of the case, Ld. CIT (A) has erred in deleting the addition of Rs. 19,77,840/- on account of interest. 7. Whether on the facts and in the circumstances of the case Ld. CIT (A) has erred in deleting the addition of Rs. 34,41,562/- on account of Manufacturing Expenses. Printed from counselvise.com 18 8. Whether on the facts and in the circumstances of the case; Ld. CIT (A) has erred in restricting the addition of Rs. 75,63,638/- on account of Manufacturing Expenses to 10% of i.e. Rs. 7,56,363/-. 9. The appellant craves leave, modify, add or forgo any grounds) of appeal at any time before or during the hearing of this appeal. 41. Ground No. 1 and 2 are the grounds relating to the rejection of books of accounts. Since the facts are similar to the issue raised by the Revenue in Ground 2 of ITA No. 4514/Del/2018 for AY 1993-94 whereby we have given a detailed reasoning for upholding the order of the CIT(A) on the same ground. In view of the detailed reasoning given hereinabove, these grounds are dismissed 42. Ground No. 3 and 4 are regarding disallowance under section 80HH and 80l of the Act, which is similar to the Ground No. 3 in ITA No. 4514/Del/2018 for AY 1993-94. We have already given a detailed reasoning for upholding the order of the CIT(A) in allowing the deduction under section 80HH and 80l of the Act. For the same reasoning, these grounds no 3 and 4 of the Revenue are dismissed. 43. Ground No. 5 is relating to Disallowance of Administrative, selling and distribution expenses of Rs. 1,61,97,155/-. AO has disallowed administration, selling and distribution expenses by computing a proportionate rate of 81.18% on the basis of alleged bogus sales of Rs.61,51,02,760/- out of total sales of Rs. 75,76,62,243/-. Thus, the AO has alleged that since the 81.81% of sales seems to be bogus, thus the same proportion is applied while disallowing administration, selling and distribution expenses. Accordingly, 81.81% of total administration, selling and distribution expenses of Rs. 1,99,49,692/- has been disallowed by the AO which comes out to Rs. 1,61,97,155/-. 44. It is noted that the disallowance made by the AO is ad-hoc in nature, based on a ratio of sales. Further, All such expenditure were as per the regular books of accounts and were incurred during the course of normal business activities conducted during the year. Printed from counselvise.com 19 45. Considering the above-mentioned facts and circumstances of the case, CIT(A) has held at Page 35 para 18.5: \"18.5 l have gone through the submissions made by the applicant and had also gone through the appellate order of my Ld. predecessor, as referred above. From the findings given in the aforementioned appellate order, my predecessor had duly accepted and allowed the sales made to M/s A.K. Industries in view of the fact that the verification at the address were inconclusive and while passing the assessment order the quantitative tally of the material has not been doubted. Even for calculating average gross profit rate of last three years, during the course of the assessment proceedings for the Assessment Year 1996-97, the sales disclosed at Rs. 75,76,62,243/- for this year has been considered by the assessing officer, thus the sales have duly been accepted. As such, in view of the detailed finding given by my Ld. predecessor and the discussion made as above, there appears to be no justification for the findings that sales made to M/s A.K. Industries be ignored and in the same proportion the administrative, selling and distribution expenditure be disallowed particularly when there is no discrepancy found or pointed out by the assessing officer in respect of the above mentioned expenses claimed. Considering the above facts, the disallowance of Rs. 1,61,97,155/- is deleted. Accordingly, the above ground is allowed.\" 46. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 47. Ground No. 6 is relating to Disallowance of Interest of Rs. 19,77,840/-. AO has disallowed the proportionate interest of Rs. 19,77,840/- on account of interest free advances made which were intricately linked with the borrowings on which interest has been paid. It is relevant to note that the interest debited in profit & loss account was paid against advances/loans taken for the business purposes. The advances which assessee has made and alleged to be interest free advances are towards the procurement of the supplies i.e. trade advances on which interest has not been charged. In this behalf, reference has been invited to PB pg. no 15 wherein, the advances given are on account of the following: a. Advances to the suppliers: 3,90,39,701 b. Advances receivable in cash or Printed from counselvise.com 20 kind for value to be received 3,85,49,050 c. Other advances 18,46, 106 48. Considering the above-mentioned facts and circumstances of the case, CIT(A) has held at Page 35 para 19.2 : \"During the course of the appellate proceedings, the AR of the appellant: had submitted that the interest, debited in Profit and Loss account, was paid against advances/loans taken for the business purposes. It is submitted that the advances which assessee had made and alleged to be interest free advances were towards the procurement of the supplies i.e. trade advances on which interest has not been charged. It is submitted that in view of the fact that most of the advances were against supplies and not as a loan, there was no occasion for charging of any interest. On perusal, it is noted that the AO has not brought out any material on record to substantiate his findings in respect of disallowance of interest. Further, on perusal of the appeal order in the case of the appellant for A. Y. 1994-95, it is noted that no such disallowance was made. It is noticed that the AO has not brought out the specific facts on record for disallowance of interest. In view of the above facts, disallowance of interest of Rs. 19,77,840/- by the AO is deleted. Accordingly, this ground of appeal is allowed.\" 49. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. Printed from counselvise.com 21 50. Ground No. 7 relates to Disallowance of manufacturing expenses of Rs.34,41,562/-. AO has disallowed the manufacturing expenses incurred by the assessee by alleging that the assessee had failed to produce necessary evidences to substantiate the claim for such expenses. It is relevant to note here that the assessee is engaged in the business of manufacturing of tin container components and kegs etc. The details with respect to raw material consumed, purchases, work in progress and finished goods has also been given in Form 3CD. However, the AO disallowed the manufacturing expenses which is not only contrary to the facts but also no cogent material has been brought on record to suggest that no manufacturing activity has been undertaken and no such expenditure has been incurred 51. The CIT(A) has duly acknowledged the submissions filed by the assessee and noted that no material whatsoever has been brought on record by the AO to substantiate that the assessee has not incurred manufacturing expenses during the year and accordingly allowed manufacturing expenses by placing reliance on the CIT(A) Order for AY 1994-95. 52. Considering the above situation, the CIT(A) has deleted the disallowance made by the AO by holding at Page 38 of the CIT(A) Order that : \"A perusal of the trading and profit & loss account, it is gathered that nomenclature of the manufacturing and administrative, selling and distribution expenses is such that the same ought to have incurred in day to day business activities. Further in the impugned assessment order, the AO has failed to point out any specific shortcoming in the claim towards expenditure claimed. It is noted that the AO has not decided the above matter afresh during the course of set-aside proceedings and has simply copied the original assessment order. In the original assessment order, the expenses were disallowed in full. In this regard, it is noted that the appellant was engaged in the manufacturing activity for components of the tin container during the period under consideration, a Printed from counselvise.com 22 fact duly accepted in the proceedings for the previous and subsequent years. Considering the facts of the case observations of the Assessing Officer, submission of the appellant and respectfully following the order of the Ld. CIT(A)-1 for AY 1994-95, disallowance of Rs. 34,41,562/- on account of manufacturing expenses is deleted.\" 53. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 54. Ground No. 8 is relating to Disallowance of Administrative and selling expenses of Rs.68,07,275/-. The Ld. AO has disallowed the expenses incurred on administration, selling & distribution of Rs. 70, 16,841/- out of total expenditure of Rs. 75,63,838/- incurred by the assessee alleging that the assessee has not produced the details of such evidences. In this regard, it is relevant to note here that all such expenses such as salary, telephone and telex charges, audit fees, conveyance and staff welfare, electricity charges, bank charges and commission, insurance etc. are all incidental to the business of the assessee. These have been incurred in day to day business activities. The allegation made by the AO is itself flawed and contrary to the facts of the case. No material of any kind whatsoever has been brought on record by the AO to substantiate that no such expenses were incurred by the assessee. Considering the aforesaid factual matrix, the CIT(A) has rightly deleted that the disallowance made by the AO by holding at Page 38 of the CIT(A) Order that: \"Further, for the regular business activity, certain expenditure with respect to administration, selling and distribution ought to have been Printed from counselvise.com 23 incurred by the appellant. Considering the facts of the case observations of the Assessing Officer, submission of the appellant and respectfully following the order of the Ld. CIT(A)-1 for AY 1994-95, 1 am of the considered view that disallowance of above expenditure at Rs. 75,63,638/-is at a higher side and is ordered to be restricted to 1/10th i.e. Rs. 7,56,363/- out of total expenditure of Rs. 75,63,638/- claimed. Accordingly, the above ground of appeal is partly allowed.\" 56. In the absence of any contrary facts being brought on record by the Revenue, this ground of revenue is dismissed. 57. Ground No. 9 is general and requires no adjudication. 58. Resultantly, the Revenue’s appeal No. 7501/Del/2018 (AY 1995-96) is dismissed. 59. In the result, all the 03 appeals filed by the Revenue stand dismissed in the aforesaid manner. Order pronounced on 27.08.2025. SD/- SD/- (Anubhav Sharma) (Kriwant Sahay) Judicial Member Accountant Member Date: 27-08-2025 Copy forwarded to: - 1. Appellant 2. Respondent 3. DIT 4. CIT (A) 5. DR, ITATTRUE COPY Assistant Registrar, ITAT, Printed from counselvise.com "